South African Sugar Master Plan to Allow for Biofuel Production

JOHANNESBURG (Capital Markets in Africa) – A plan to support South Africa’s ailing sugar industry will include tapping into the biofuel potential of cane.

Government, farmers and industrial users in the 14 billion rands ($924-million) industry are working on a strategy to stem a crisis caused by a flood of cheap imports and a tax on sugar-sweetened drinks that lowered the demand from beverage makers. President Cyril Ramaphosa said in his Feb. 13 state-of-the-nation address that a Sugar Master Plan would be finalized within six weeks.

While the plan will include strategies to optimize the local market, comprising producers in the Southern African Customs Union, and elements of crop diversification and innovation, moving into ethanol production will provide support and create jobs, said Trix Trikam, executive director of the South African Sugar Association.

“The industry has the potential to diversify into fuel ethanol and is well-positioned to pilot producing bio-ethanol, thus creating significant opportunities for industrialization, job creation and sustainable economic development,” Trikam said.

Most of South Africa’s sugarcane is grown in the east of the country and the industry supports about 85,000 direct jobs. The tax on sugary beverages that came into force in 2018 as a health promotion levy has led to industry losses of more than 3.6 billion rand and a decrease in employment, according to SASA. Annual sugar production has declined by nearly 25% over the past two decades, Trikam said.

A first-generation 460 million-liter biofuel program, which includes input from sugar cane, could create 13,000 direct new jobs in rural areas, generate 1.8 billion rand in individual and corporate tax contributions and yield 1.3 billion rand in balance-of-payments savings by reducing fuel imports, according to the South African Biofuels Regulatory Framework, which cited an Industrial Development Corp. economic impact study.

Fuel Levy
The program could be subsidized by a fuel-levy increase on all gasoline and diesel. The Treasury said in its 2013 budget review that the rise in the levy could be 3.5 cents to 4 cents per liter.

The plan doesn’t deal with the co-generation of electricity, said Thomas Funke, a commercial director of industry body the South African Canegrowers Association. That’s despite the economy suffering from chronic power shortages.

State-owned utility Eskom Holdings SOC Ltd, which supplies 95% of the power used in Africa’s most-industrialized economy, has struggled to meet the demand for electricity since 2005. It regularly implements blackouts to prevent a total collapse of the national grid.

All 12 sugar mills in South Africa generate their own power by burning the fiber left after the sugar-extraction process and are independent of the national grid, with some selling excess power to local municipalities. The industry would be able to supply around 700 megawatts to the national electricity network after extensive factory and milling infrastructure upgrades, Funke said. The industry currently supplies between 1 megawatt and 2 megawatts to the grid, depending on the time of year, availability of fiber and mills’ needs, he said.