‘Sugar tax will not have heavy effect on consumers’
Finance Minister Pravin Gordhan says government will implement a sugar tax on sweetened drinks.
JOHANNESBURG - While consumers with a sweet tooth for sugary beverages will expect their own sin tax from April next year, economists say it won't have a heavy effect on the prices in the grocery basket of the average consumer.
In his Budget speech, Finance Minister Pravin Gordhan said government would implement a sugar tax on sweetened drinks from April 2017 in an effort to curb obesity.
These include soft drinks, fruit juices, energy drinks and vitamin waters.
Independent economist Maya Fisher-French says these luxury items and will not necessarily affect consumers living on the poverty line.
"Sugar beverage is a luxury, not your basic staple, so it is easy to avoid. There's a lot of taxes in South Africa we cannot avoid … the fuel levy and electricity prices are going up and many costs we can't avoid in life, which are necessity costs."
Absa Agricultural economist Ernst Janovsky says control mechanisms in the industry might allow producers to control prices but it will inevitably affect the local price of the sugar industry.
"It's not going to affect the price because the price can be fixed through the process of control. What it will do is, and maybe this is the negative side of it, it might drive the consumption of sugar lower in South Africa."
Gordhan said, "Obesity stemming from over-consumption of sugar is a global concern. Over the past 30 years the problem has grown in South Africa, which has the worst obesity ranking in sub-Saharan Africa, and led to greater risk of heart disease, diabetes and cancer."
According to Africa Check, one in four South Africans is obese.
The Heart Foundation explained that 40 percent of South African women are obese, one in four girls and one in four boys between the ages of two and 14 years are overweight or obese.
With the sugar tax in place, countries such as Mexico managed to reduce beverage consumption by adding the tax to their living healthy programmes.
Mexico's congress passed a one-peso-per-litre tax on sugary beverages.
The Guardian says by December 2013, Mexicans were buying 17 percent less sweetened beverages than the year before.
Meanwhile in the US, the Huffington post quoted a study published in the American Journal of Agricultural Economics, which found that taxing beverages by volume or outright banning large sugary drinks isn't the best way to improve public health, instead, it's all about taxing soda per calorie.
However, most states in America have signed into law the sugar tax, following many calls to do so.
South Africa is expected to harvest 1.63 million tonnes of sugar in the 2015/2016 season, the lowest since 1995 and down 22 percent on the previous period as a severe drought hits production, an industry body said on Wednesday.
The worst drought in a century has hurt sugar and maize producing regions, piling pressure on sugar producers who are also grappling with cheap imports, forcing some mills to remain closed and reducing jobs in the sector.
The government has already responded to the lack of rainfall by allocating R1 billion for drought disaster relief in 2015/16.
"The South African sugar industry has not escaped the adverse impact which is expected to include loss of income and jobs," South African Sugar Association Executive Director Trix Trikam said.
The sugar industry, which has revenue of about R12 billion rand and employs 79,000 people directly and 350,000 indirectly, is also grappling with low prices and a flood of cheap imports, mainly from Brazil.
Trikam said rainfall had been some 60 percent below what was required in the crucial months between December and March, when the crop is growing and evaporation is high.
In the 2014/15 season farmers reaped about 2.12 million tonnes of sugar, not far from an average of around 2 million tonnes in recent years, Trikam said.
Yet the impact of the drought was already evident in results published in November by southern Africa's top sugar producers Illovo Sugar and Tongaat Hulett, whose earnings were hit by weather conditions as well as low sugar prices.
Tongaat estimated production for the current season to be as much as 23 percent lower than the prior year while Illovo forecast a 10 percent drop.
Food and Allied Workers Union General Secretary Katishi Masemola told Reuters some sugar plantations had said they would need less labour due to lack of rain.
"Our concern is that more people have joined the army of the unemployed even if they are seasonal workers," Masemola said.
Trikam said the 1993-1994 drought had led to extensive job losses, without elaborating on the current season's jobs impact.
Trikam said there was enough sugar in the market to supply the home market, but sugar producers were reducing exports to avoid possible shortages.
Smaller sugar and food producer RCL Foods said in a statement: "As a result of an expected decline in sugar availability in the country, the sugar industry reduced its exports in order to ensure sufficient sugar for the domestic market."
Additional reporting by Reuters.