Illovo highlights threats from cheap sugar imports

South Africa’s sugar milling giant Illovo has reiterated the lamentation that cheap sugar imports are squeezing local operators. The situation has pushed local operators to seek relief through import tariff increase.

Illovo made known its stand today in the company’s financial statement for the six months ended September. Ironically though, Illovo’s half year financial results show a healthy performance.

Illovo said “The commercial environment is difficult with sugar imports impacting negatively on domestic sales and prices in South Africa and Tanzania.”

Illovo noted that “The South African sugar industry has made an application to International Trade Administration Commission of South Africa (ITAC) for an increase in the import tariff which it is hoped will reduce the level of duty-free imports in due course.”

In addition, the continued world sugar surplus has put pressure on the group’s export markets. The world sugar price is currently trading at around US18 cents/lb and although it has rallied recently it still remains below the cost of production for most sugar producers.”

Illovo added that “Domestic markets are the bedrock of the group’s sugar sales but are expected to be slightly lower compared to last year due to increased levels of imported sugar in South Africa and Tanzania.”

But the group’s performance was healthy during the six months ended September in what perhaps also reflect non fundamental factors like exchange rate gains from a weaker rand.

Revenue was up 23.4% at R6.4bn. Operating profit shows 9.4% growth to R1.6bn while headline earnings per share rose 14%. Illovo’s MD Gavin Dalgleish was a bit bullish in his words. “The favourable operating conditions experienced during the period resulted in a positive increase of 9.4% in sugar production and 11% in sales volumes.”

But then these statements are significantly influenced by non South African operations. Illovo mills sugar across a number of countries within the southern African region. Country contributions to group production during the six months ended September was as follows: Malawi 33%, Zambia 30%, South Africa 10%, Swaziland 17%, Mozambique 9% and Tanzania 1%.

There is also the fact that Illovo has somewhat diversified its operations as reflected in the segmental contribution to operating profits: sugar production 52%, cane growing 44%, downstream and co-generation 4%.

However Illovo maintains in line with the South Africa Sugar Association (SASA) cheap imports threatens the local industry. SASA has sort relief in form of import tariffs from government. The Association of Southern African Sugar Importers (ASASI) as can be expected is opposing this application.

ASASI has raised the volume in its opposition to the import tariff brigade. The situation is like a replay of the poultry matter where the South African Poultry Association cried foul against imports and secured some relief in form of increased import tariffs. The matter divided the South African public with views that the tariffs will come to hurt the consumer. On the other hand there is an argument that there won’t be consumers if local industries are left to die.

Chris Engelbrecht, Chairman of ASASI, has said “South African consumers are already being hit hard by rising food prices.”

In the last five years, the price of a 2.5 kilogram bag of sugar has increased more than 60%. If enacted, this tariff increase will increase South African grocery bills even further and crush countless South African small businesses and eliminate thousands of local jobs.”

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