Balancing act: Will South Africa’s sugar tax survive amid industry pressure and health concerns?

When your news feed is full of complaints about the sugar tax, a budget speech is probably imminent. 

Ahead of Wednesday’s mini budget, for instance, the sugar industry published an open letter urging Finance Minister Enoch Godongwana and others to scrap the tax or, at the very least, leave it unchanged, as it has been for the past five years.  

The South African Revenue Service (Sars) has administered and collected a sugar tax as part of a levy on harmful consumer products such as soda, energy drinks and other beverages. (Photo: sustainweb.org / Wikipedia)

The sugar tax, or Health Promotion Levy (HPL), is a fee that manufacturers pay for every gram of sugar per 100ml (currently 2.1c). The first four grams are tax-free. 

Scrapping or freezing the levy is the least the state can do, the letter argues, since it failed to hold the tax meetings it agreed to as part of the sugar masterplan, a phased rescue operation that governs the industry’s switch to sweeteners and biofuels over 10 years. 

Godongwana made no mention of the levy this time around, but in March, he announced that 2025 could bring a 10% increase in the sugar tax, which is still short of the 20% rate that public health researchers originally recommended. 

The tax hike and the fact that the Treasury, Department of Health and the Congress of South African Trade Unions (Cosatu) did not participate in phase one of the master plan, are likely to be behind the industry’s frustration.  

Phase one came and went with just half of its targets met, and the no-shows are partly to blame, according to a September presentation to Parliament, which is so far the only window into the opaque master plan process.

The first phase did, however, succeed in putting the industry on firmer footing by addressing three major problems mentioned in the master plan. 

Overseas sugar imports dropped by nearly two-thirds and local sugar sales are growing faster than anticipated, Parliament was told.  Business rescue operations for Tongaat Hullet and Gledhow are ticking along too. Tongaat, for instance, stands a “reasonable chance of being rescued”, according to a September letter to the Competition Commission. 

One of the biggest industry players, RCL Foods, meanwhile, reported a 20% increase in its sugar business to shareholders just a month before co-signing the industry open letter.  

RCL Foods told Daily Maverick that the growth was mostly driven by high world sugar prices and that it supported the open letter’s demands because significant uncertainty remained about the sugar industry’s future. 

“The master plan has been helpful to help the industry recover,” explains South African Sugar Association (Sasa)’s director, Trix Trikam, but her industry still feels the “devastating impact” of the HPL, adding that the levy is the “antithesis” of the rescue plan’s goals. 

Despite evidence that the industry is stabilising, the open letter repeats well-worn claims that the levy is a death knell for an ailing business and that increasing the tax will worsen two of South Africa’s scariest statistics — unemployment (33.5%) and food insecurity, which are both at record highs. 

But the statement’s familiar refrains only make its omissions more glaring.

The HPL is weakened, but industry took the first blow 

The industry claims there’s no proof that the sugar tax made people healthier. This is misleading because it doesn’t acknowledge the reason the tax is no longer effective. 

Research initially showed the tax was working to cut people’s sugar intake, but it lost its power because industry efforts resulted in the rate being halved, and again when the levy was frozen so that the industry could enact its rescue plan. 

In short, the reason the industry is giving for scrapping the tax is also a good reason to double it. 

Trikam says that any increase in the tax rate or expansion of the levy to fruit juices will be devastating, cause mill closures and put millions of workers and small-scale growers out of their jobs. 

Gaffes and blunders: Why the industry prefers its own data  

The letter continues: “What we do know is that the tax has added to economic instability, cut jobs and further threatens livelihoods.” 

It uses two dubious statistics to back up his claim. 

One comes from a controversial and outdated Nedlac study which showed the levy led to 16,000 job cuts in its first year. 

The second, that the HPL will cut sugar jobs by 10% by 2030, is from a report by the Bureau for Food and Agricultural Policy (BFAP). The study was commissioned by Sasa and relies heavily on statistics provided by the industry itself.  

Both of these numbers are projections that use imprecise estimates of past job losses to predict what might happen in the future. 

The most recent and credible statistics on this topic, meanwhile, are conspicuous in their absence.

An analysis of 15 years of nationally representative, actual job loss data found the HPL had no impact on employment in the sugar industry. The study, which hasn’t been peer-reviewed, was conducted by Priceless, an independent research group based at the University of the Witwatersrand. 

Similar studies have found the same results in several other jurisdictions including Peru, Mexico and US states such as San Francisco, Philadelphia and others. 

Priceless researchers analysed official labour statistics published between the first quarter of 2008 and the first quarter of 2023 using a method called “interrupted time series analysis”.

This is a particularly useful way to evaluate the impact of public health policies aimed at making population-level changes, explains the study’s lead author Chengetai Dare.

It allowed the researchers to analyse job losses before and after the sugar tax and then determine whether the tax caused job cuts, or whether it was part of an existing trend that would have unfolded regardless of the levy.

The model allowed Dare and his colleagues to account for the unique circumstances of each province and then identify which factors had a statistically significant impact on jobs in the sugar industry (Covid-19), and which did not (the sugar tax).

When this study was first released, SA Canegrowers, which has always been opposed to the levy, claimed that Priceless couldn’t be impartial because it had always supported the sugar tax.

The industry body also criticised the Priceless findings using an argument based on a misinterpretation of the study’s methods: SA Canegrowers and Trikam have both complained that the Priceless study found no job losses because it included statistics from major employers such as grain, citrus and livestock.

The authors acknowledged that the broad nature of the labour stats limited their study, but they did in fact take pains to exclude data from these sectors from its final conclusion. 

With all this added context, the sugar tax no longer looks like it forces lawmakers to choose between economic growth and health. Instead, it emerges as an affordable way for the government to improve people’s health without sacrificing their livelihoods. 

There’s growth in the green economy 

Not only does the letter overstate the HPL’s risks to the industry, it also neglects to mention the opportunities the future almost certainly holds under the sugar masterplan.

The switch to biofuel could create thousands of jobs in various sectors including sugar over the next 20 years, found a 2022 report conducted by the Worldwide Fund for Nature (WWF).

“Switching to biofuel is not an overnight process,”  Trikam warns. 

The WWF report suggests though that South Africa’s existing sugar infrastructure could already produce up to 4.5 billion litres of eco-friendly jet fuel each year, the report shows. That’s enough to replace all the conventional jet fuel used locally in favour of a greener, blended alternative, and there would be enough left to export about 3 billion litres, too. 

There are several ways to produce biofuel, but the WWF focused its analysis on six scenarios: molasses (sugar), soybeans, two types of garden waste, and industrial off-gases. 

A comparison of each scenario concluded that making jet fuel using molasses from the existing sugar infrastructure is the quickest and cheapest option for South Africa to start with. 

It won’t be enough on its own in the long run, but it could still meet 10% of the country’s jet fuel demand, while also protecting sugar sector jobs and helping the country reduce the carbon emissions that fuel the climate crisis. 

Government scoping studies are under way, but Trikam says the industry will need at least five years to get the process running, as well as a supportive regulatory process similar to the policies that led to the success of other biofuel industries, such as in Brazil.  

There is no sugar tax in Brazil. The country’s government opted to incentivise biofuels (through subsidies and tax breaks) rather than penalising sugar products. It’s worth mentioning that diabetes and high blood sugar cause three out of every four early deaths in the country and the figures are only getting worse.

Why unions don’t want the HPL scrapped 

Sugar plantation jobs are difficult and dangerous and they pay very little. But industry statements rarely include the voices of the workers whose livelihoods they invoke. 

Cosatu, which is listed as a social partner in the master plan, does not agree that the sugar tax should be scrapped, Cosatu’s parliamentary liaison Mathew Parks told Daily Maverick.

The labour confederation’s sugar industry affiliates, Parks explains, favour something in between the WHO recommendation and the industry’s demands. 

It cannot ignore the pleas of its members who work in the public health sector, who see the health consequences of malnutrition every day, Parks says. 

Union nurses have reported a wave of lower-limb amputations in public sector healthcare, particularly in rural areas. In KwaZulu-Natal, one of the country’s sugar refinery hubs, research shows the situation is dire. An audit of records at Addington Hospital in Durban found that of the nearly 770 lower limb amputations performed at the hospital between 2010 and 2014, about half were linked to diabetes. 

A lack of nutritious food can cause stunting, but it can also have the counterintuitive outcome of overweight and obesity, which in turn contributes to non-communicable conditions such as diabetes. In 2020, obesity and its related diseases cost the country about R30-billion. 

Says Parks: “Jobs are important, but so is healthy food.”  DM

Joan van Dyk is a Johannesburg independent health journalist.