Market Update: How the Tongaat Hulett crisis could devastate South Africa’s rural sugar economy – Full Analysis

The application to place Tongaat Hulett into provisional liquidation has crystallised a reality many in the sector have feared for some time: the financial distress of a cornerstone miller now threatens to cascade through the entire sugar value chain.

Tongaat is not a peripheral player. It operates critical milling assets and South Africa’s only stand alone white sugar refinery supplying the food, retail and beverage industry, and its three mills serve approximately 18,000 growers — the majority of the country’s 28,100 sugarcane farmers. It directly employs several thousand people in KwaZulu-Natal and sources cane from more than 18,000 sugarcane growers, of which the vast majority are small-scale growers. This value chain is estimated to sustain about 40,000 direct and indirect jobs and are therefore an anchor in their rural communities.

SA Canegrowers represents 27,000 small-scale growers and 1,100 large-scale growers. Behind each of those growers are workers, families and small businesses whose economic security is tied to the stability of this sector. When a mill falters, it is not just a balance sheet that is affected — it is an entire network of rural activity.

If milling operations are disrupted or grower payments stall, the consequences move rapidly beyond the farm gate. Growers cannot finance fertiliser, wages or replanting without certainty of payment.

Sugarcane is a multi-year crop; once land exits production, it does not return easily. From painful experience with other mill closures, if a mill stops producing and stands empty, even for one season, the underlying assets and materials of the mill is vandalised and stripped, effectively permanently closing that mill. Should growers and mills exit the industry around Tongaat Hulett serviced areas, it will devastate areas where sugar is the primary economic anchor.

In parts of KwaZulu-Natal and Mpumalanga, there is no substitute industry waiting in the wings. Sugar underpins local retail, logistics, agricultural services and municipal revenue. When cane income contracts, rural economies contract with it. Should sugarcane production stop in Tongaat Hulett areas, the reality is that entire sections of KwaZulu-Natal’s rural landscape will be pushed into social and economic distress.

This is the first, immediate crisis: the spectre of Tongaat Hulett’s unfunded liquidation – potentially within weeks – is intrinsically tied to thousands of rural jobs.

The second crisis is the surge in imported sugar that has steadily eroded domestic market share. Industry data shows that imports reached approximately 163,000 tonnes up to December — a 155% increase on the prior year. This has displaced locally grown sugar and forced surplus South African production onto volatile export markets at a loss. Those losses translate into lower recoverable value prices for growers and tighter margins across the sector.

For rural communities, import displacement is not an abstract trade statistic. When locally produced sugar is replaced on supermarket shelves, revenue that should circulate through KwaZulu-Natal and Mpumalanga flows offshore instead. Lower grower returns mean deferred maintenance, fewer seasonal workers, job losses, scaled-back community investment and reduced spending in local businesses. Over time, this weakens the resilience of districts already grappling with high unemployment and limited economic diversification.

The third crisis – and one entirely within domestic policy control – remains the Health Promotion Levy.

Eight years after its introduction, the levy continues to suppress demand for locally produced sugar. In its first year alone, Nedlac found that 16,000 jobs were lost and R2 billion in revenue was removed from the industry. Those losses are felt in rural communities where each job supports extended families and informal economic networks.

In the current environment, the levy compounds the strain. Beverage manufacturers under cost pressure increasingly turn to cheaper imported sugar to defend margins, further eroding domestic cane demand at a time when milling stability and import competition are already under severe pressure.

Tongaat Hulett’s liquidation further might mean that insufficient white sugar is produced in South Africa – further turning food and beverage manufacturers to overseas suppliers. This not only undermines local growers, it puts South Africa’s economy squarely at the mercy of international inflationary pressures.

Whilst the immediate, and very real consequence of these three crises will be felt by South Africans who are on the verge of losing their livelihoods, there is a longer-term risk to South Africa as well.  Sugarcane is not only a source of refined sugar; it is a feedstock for diversification into bioethanol, sustainable aviation fuel, renewable electricity from bagasse and other green industrial applications.

The development of a rural bio-economy — one that aligns with South Africa’s green industrial ambitions — depends on a stable and viable cane-growing base. If canegrowers are permanently pushed out of business due to the immediate crises, future opportunities at job creation and economic growth that have grown from the sector disappear before they can take root.

SA Canegrowers has consistently engaged government on the need for coherent, coordinated intervention to protect this strategic sector. This is not a call for special treatment; it is a call for recognition that sugar anchors entire rural regions. Protecting growers protects jobs, communities and long-term industrial potential.

SA Canegrowers is calling on government, especially the Department of Trade, Industry and Competition to enact measures that will ensure a viable, long-term sector that protects rural jobs and livelihoods – by urgently enacting fair import tariff pricing, funding support to keep the mills open, and a policy environment that enables green industrialisation. The Treasury can assist the local industry by scrapping the Health Promotion Levy, or sugar tax, which has cost jobs and livelihoods but has had no impact on health outcomes. Or course there are many parties beyond the government in this arena, but consistent, enabling government policies are the starting point for a healthy sector, which supports more than a million livelihoods and is the economic backbone of large parts of rural KwaZulu-Natal and Mpumalanga.

Higgins Mdluli, chairman of SA Canegrowers

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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