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The South African sugar industry is one of the world's leading cost competitive producers of high quality sugar. It is a diverse industry combining the agricultural activities of sugarcane cultivation with the industrial factory production of raw and refined sugar, syrups, specialised sugars and a range of by-products.
The industry produces an estimated average of 2,5 million tons of sugar per season. About 50% of this sugar is marketed in the Southern Africa Custom's Union (SACU). The remainder is exported to numerous markets in Africa, the Middle East, North America and Asia.
The South African sugar industry makes an important contribution to the national economy, given its agricultural and industrial investments, foreign exchange earnings, its high employment and its linkages with major suppliers, support industries and customers.
Based on revenue generated through sugar sales, in the SACU region and world market exports, the South African sugar industry is responsible for generating direct income totalling R6 billion.
The South African sugar industry contributes up to an estimated average R2,38 billion to the country's foreign exchange earnings on an annual basis.
The sugar industry makes an important contribution to direct employment in cane production and processing, and provides indirect employment for numerous support industries in the three provinces where sugarcane is grown - KwaZulu-Natal, Mpumalanga and the Eastern Cape, in sectors such as fertiliser, fuel, chemical, transport, food and services.
Employment within the sugar industry is approximately 85 000 jobs. Direct and indirect employment is estimated at 350 000 people. There are approximately one million people dependant on the sugar industry. In addition there are more than 50 000 registered cane growers.
The 50 000 registered sugarcane growers produce more than 27 million tons of sugarcane from 14 mill supply areas, extending from Northern Pondoland in the Eastern Cape to the Mpumalanga Lowveld. More than 48 000 are small-scale growers, of whom 28 600 delivered cane in 2003 producing approximately 13% of the total crop. With the growth of economic development and empowerment of previously disadvantaged people, a growing number of medium-scale farmers are continuing to enter sugarcane agriculture on farms made available at market-related prices by the major milling companies.
There are approximately 2 000 large-scale growers who produce 75% of total sugarcane production. Milling companies with their own sugar estates produce 12% of the crop. This percentage of the total crop produced by these miller-cum planter estates has decreased in recent years and is likely to continue to do so as the companies promote more medium-scale farming development.
The milling sector of the industry employs 11 000 people in 14 sugar mills and at the companies' central administration offices in KwaZulu-Natal and Mpumalanga. Six mills are owned by Illovo Sugar Ltd; four mills are owned by Tongaat Hulett Sugar Ltd; two mills by Transvaal Sugar Ltd, one is a co¬operative - Union Co-operative Ltd, and Gledhow Mill is owned by Grand Bridge Trading 40 Ltd, a black empowerment company. The two Transvaal Sugar mills are located in Mpumalanga province and the remainder in KwaZulu-Natal province.
Five of the mills are known as "white end" mills and produce their own refined sugar. Raw sugar produced by Transvaal Sugar is exported via the sugar terminal in Maputo, Raw sugar produced at the remaining mills is routed to Durban where it is either refined at the central refinery of Tongaat Hulett Sugar or stored at the Sugar Association sugar terminal prior to export.
SASA administers the partnership on behalf of the South African Cane Growers' Association and the South African Sugar Millers Association Ltd. As equal partners, each member elects eleven councilors to sit on the SA Sugar Association Council, which meets monthly. The Chairmanship and Vice-Chairmanship of Council alternates every two years between a grower and a miller.
SASA is an autonomous organisation and operates free of government control. (In terms of the Sugar Act and Sugar Industry Agreement, statutory powers of self government are granted to the sugar industry.) SASA's administrative and industrial activities and organisations are financed from the proceeds of the sale of local and export sugars and molasses. Its affairs are administered by the Council of the Sugar Association.
The Division of Proceeds is the formula through which revenue that accrues to the Sugar Industry is allocated to the millers and growers as part of the partnership arrangement, The Division of Proceeds calculation is a notional calculation, and whilst representing industry income does not reflect actual revenues. The Division of Proceeds formula is dynamic and changes from time to time in accordance with the environment in which the industry operates taking into account the needs of the industry, At the end of the 1997/98 season, the pool system whereby proceeds were accounted for in two pools, the A and B pool, in which Millers and Growers participated, based on quotas was discontinued, The Division of Proceeds now comprises a single pool.
The notional proceeds from refined and brown sugar in the national market, raw export sugar and molasses comprise total industrial proceeds. Total notional industrial proceeds are determined by the size of the crop and the prices achieved on the local and export markets for sugar and molasses sales, The size of the annual sugarcane crop is determined by the area under sugarcane (including if it is dryland or irrigated) the nature of the agricultural season, the quality of the sugarcane crop and the efficiencies achieved in processing the crop through the sugar mills. Notional prices for sugar and molasses are dependent on market conditions both locally and abroad as well as on the rand/dollar exchange rate.
Industrial costs are the costs of administrating the Sugar Association that include all the specialist services provided by SASA including agricultural research, sugar exports and many more.
Industrial costs are a first charge against the total notional industrial proceeds to determine the net divisible proceeds, which are then split, based on a fixed percentage between millers and growers. Total deliveries to mills during a season are then divided into the grower's share, which then establishes the price per ton for the growers' deliveries.
The Division of Proceeds calculation is performed on a monthly basis during the season based on estimates with a final calculation at the conclusion of the season.
Other than proceeds from the export of raw sugar, revenues flow directly to the milling companies. Export proceeds from the sale of raw export sugar, which is sold through the Sugar Association, is paid to the milling companies shortly after receipt. The milling companies then pay the growers based on cane delivered to their mills. The Division of Proceeds reflects the nature of the Sugar Industry where growers and millers are interdependent and where the welfare of both parties is dependent on the performance of the other.
Sugar Industries worldwide are regulated. Regulation is required to facilitate the relationship between the growers and millers as well as to protect industries against trade distorting measures practiced by some major sugar producing countries.
The South African Sugar Association is constituted in terms of the Sugar Act. The Act provides for an Agreement to regulate the affairs of the sugar industry, binding upon all those who grow sugarcane and produce sugar and associated sugar products. The Sugar Act has been amended from time to time in response to changing circumstances in the industry and the environment in which it operates.
The Sugar Industry Agreement covers the following:
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