NextFin News - South Africa's sugar industry is losing its domestic market to cheap imports as an eight-year-old tariff benchmark fails to track global prices, while the sector's planned escape route into fuel ethanol remains stuck in policy limbo. Duty-paid sugar imports rose more than 70-fold in four years, from 1,619 tonnes in the January-June period of 2022 to 124,594 tonnes over the same months in 2026, even as local sales fell 35% — about 188,000 tonnes — in just three seasons.
This is a crisis with two distinct causes, and only one of them has been fixed. The first is mechanical: a dollar-based reference price frozen at $680 a tonne since 2018, which left South Africa's variable tariff powerless once world prices fell. The second is structural: a biofuels mandate that governments have approved for more than a decade but never enforced, denying growers an alternative market for their cane. A partial tariff adjustment announced in late August should slow the import surge. It does nothing for the stalled ethanol plan that the industry says could absorb up to 750 million litres of production a year.
The Import Surge: A Tariff Mechanism That Stopped Working
South Africa does not protect its sugar growers with a fixed duty. It uses a variable tariff keyed to a dollar-based reference price (DBRP): when the world price falls below the benchmark, the duty rises to bridge the gap; when the world price rises above it, protection falls away. The mechanism only works if the reference price reflects reality. From 2018 until August 2026 it did not.
The consequence is visible in the customs data. According to figures tracked by the South African Sugar Association from the South African Revenue Service, 94,984 tonnes of sugar were imported between January and May 2026, compared with 55,213 tonnes in the same period in 2025 and just 1,491 tonnes in January-May 2022. In January 2026 alone, about 24,600 tonnes of refined sugar entered the country from Brazil, India and Thailand — more than the total annual imports recorded in each of 2020, 2021 and 2022.
The surge has come at the direct expense of local sales. Industry data for the period April 1 to June 30, 2026 shows local sales of 255,015 tonnes, a collapse of more than 45,000 tonnes compared with the same period in 2025. Before the tariff framework eroded, local sales for the same period reached recent highs of 428,422 tonnes. In the space of a few seasons, nearly 175,000 tonnes of local sales have been lost for growers and millers.
"Every tonne of locally produced sugar displaced by an import is a direct hit to a grower's income, a mill's viability, and a rural community's stability. The scale of what we are seeing now is nothing short of a crisis," said Higgins Mdluli, chairman of SA Canegrowers.
The losses are measurable in rand. SA Canegrowers estimates growers lose more than R7,000 for every tonne of local sugar displaced by imports, amounting to an estimated R1.5 billion hit for the 2025-26 season in an industry that supports more than one million livelihoods, mostly in rural KwaZulu-Natal and Mpumalanga. The domestic sugar price has fallen to around R6,600 a tonne as of July, more than 10% lower than a year earlier.
The pressure is not only from overseas. The United States Department of Agriculture's foreign agriculture service reported that in the 2025-26 marketing year the import surge suppressed local sales by approximately 10% of domestically produced sugar, forcing mills to divert output to an export market already distorted by global overproduction. At the same time, production costs are rising: electricity tariffs increased by an average of 8.76% effective April 1, 2026, hitting irrigated cane growers in Mpumalanga, who represent almost 20% of planted area, while fertilizer and fuel costs have climbed on Middle East tensions.
The Ethanol Escape Route That Never Opened
For more than a decade, the industry's answer to sugar overproduction has been diversification into biofuels — turning sugarcane into ethanol for blending with petrol, as Brazil and India have done at scale. The policy architecture exists on paper. The Department of Mineral Resources and Energy relaunched the Biofuels Regulatory Framework in early 2025, with implementation targeted for January 2026 and voluntary blending levels of E2 to E10 for ethanol and B2 to B5 for biodiesel. The Regulations for Biofuels Price were gazetted in March 2026.
But a framework is not a market. The blending levels remain voluntary, pending "sufficient certified feedstock supply," and no binding mandate has been enforced. Without a guaranteed offtake, ethanol production is uneconomic: the manufacturing cost of bioethanol exceeds the imported cost of petrol, which the Minister of Mineral and Petroleum Resources has set as the fuel-ethanol price.
The industry has been looking for a shortcut around the policy deadlock. The South African Sugar Association confirmed it is in talks with Engen Petroleum to repurpose the Engen refinery in Durban — shuttered since a fire and explosion in 2020, with a nameplate capacity of 120,000 barrels a day — into a plant producing fuel ethanol from sugarcane.
"We cannot share a lot of information at this stage, but we can confirm that we are having conversations about that possibility," said Portia Mpofu, SASA's external affairs director.
The potential prize is substantial. Brian Tait, SASA's energy consultant, said the sugar industry could produce up to 750 million litres of ethanol a year — enough to meet around 8% of South Africa's total fuel demand of approximately 10 billion litres annually. That would create a domestic sink for cane that the sugar market can no longer absorb, and reduce the country's exposure to imported fuel.
Yet the same circular problem blocks the refinery plan: without a mandate, there is no price support; without price support, no investor will commit capital. "Until that is resolved it is unlikely that anyone will be able to manufacture biofuel competitively," Tait said. The industry argues its diversification would succeed only under a regulatory framework similar to the strategies in India and Brazil — countries whose integrated ethanol programmes also allow them to offload surplus sugar onto global markets at prices below what it costs South African growers to produce. In other words, the very policy that would save the industry is being held hostage to the market failure that policy was meant to fix.
The Partial Fix: Tariff Relief That May Not Be Enough
Relief arrived in late August, but only on the import side. The International Trade Administration Commission of South Africa (ITAC) raised the dollar-based reference price for sugar from $680 a tonne to $785 a tonne — the first adjustment since 2018. The commission said the new level is based on the six-year weighted average London No. 5 FOB sugar settlement price of $559 a tonne, adjusted upward for distortions in the global sugar market and downward for average shipping costs. The accompanying customs duty rose by roughly 44%, from 483.72 cents a kilogram to 697.92 cents a kilogram.
The outcome sits between two sharply opposed applications. The South African Sugar Association applied on October 30, 2024 for the reference price to be raised to $905 a tonne. The Beverage Association of South Africa applied on September 25, 2025 for it to be cut to between $552 and $650 a tonne, arguing that higher duties hurt beverage manufacturers, bottlers and ultimately consumers. ITAC combined the opposing applications into a self-initiated investigation and landed on $785 — closer to the growers' position, but a compromise.
Even the growers are not convinced it is enough. "The increase would not sufficiently protect the local industry against imports from subsidised countries such as Brazil," said Trix Trikam, SASA's vice chairperson. The department's own forecasts suggest why caution is warranted: the agriculture service expects the tariff increase to cut imports by 24% in the 2026-27 marketing year, while exports are forecast to fall 17% as the industry prioritises the domestic market, and production is forecast to rise 2% on higher cane deliveries.
ITAC has also built in a release valve: the duty will not be fixed. The commission will monitor international sugar prices using a 20-trading-day average, and if that average moves by more than $20 a tonne from the previous trigger level for 20 consecutive trading days, the duty will be recalculated. That mechanism should prevent the kind of eight-year drift that caused this crisis — provided it is actually used.
The tariff fix addresses only the cyclical leg of the crisis: the price gap that opened when world sugar fell against a frozen reference price. If world prices stabilise and the new benchmark holds, import volumes should retreat toward historical norms. But it does not touch the structural problem. South Africa has no enforced domestic market for ethanol, so the industry cannot diversify away from sugar even when sugar is in global overproduction. The second phase of the South African Sugar Value Chain Master Plan, signed by the Department of Trade, Industry and Competition on April 10, 2026 and scheduled to run through 2030, includes diversification into biofuels. Signing a plan, however, is not the same as enforcing one.
Cyclical Shock, Structural Wound: What This Means
The distinction between the two legs of this crisis determines whether it self-corrects. The import surge is cyclical: it was caused by a fixed reference price meeting a falling world price, and the DBRP adjustment should narrow the gap. The 24% import-decline forecast is the mechanical expectation, and the 20-trading-day recalculation trigger is the guardrail against repetition.
The ethanol stall is structural. It stems from more than a decade of approved-but-unenforced biofuels policy, and it will not self-correct. No tariff tweak can create a fuel-ethanol market; only a binding blending mandate with incentive pricing above imported-petrol parity can do that. Until then, South African growers remain one-sided: exposed to a volatile global sugar market with no alternative outlet for their cane.
The second-order transmission runs through three channels. First, the food channel: sugar is an input for the domestic beverage and confectionery sector, and a weaker tariff shield eventually forces a choice between higher input costs for manufacturers or a smaller local crop — both inflationary in different directions. Second, the trade channel: every tonne of cane that cannot be sold domestically must be exported into a global market where Brazil, India and Thailand can price below South African production cost because their ethanol programmes absorb the residual, meaning the rand value realised per tonne of cane keeps falling even when world prices stabilise. Third, the fiscal channel: the industry supports more than one million livelihoods across KwaZulu-Natal and Mpumalanga, so a hollowed-out crop translates into rural income support and employment pressure that lands on provincial budgets rather than on company balance sheets. A tariff line cannot price any of those three channels.
The counter-argument carries real weight. A binding mandate would shift costs to motorists and beverage consumers, and South Africa's certified feedstock base may be too small to support meaningful ethanol production at competitive cost. The beverage lobby made exactly that case to ITAC, and the commission's compromise number reflects it. There is also the question of whether a mandate would simply pull cane out of sugar production, tightening domestic supply and raising food prices — the very outcome the tariff is meant to prevent.
But that argument confuses sequencing with substance. The industry's ethanol economics fail only because the price benchmark is set at imported-petrol parity with no blending obligation to guarantee volume. Brazil and India did not wait for ethanol to become cheaper than petrol before mandating blends; they mandated blends and let scale drive costs down. The falsifying test is specific: if a binding ethanol blending mandate with incentive pricing is gazetted within the coming financial year — the window in which the mineral and petroleum resources department has said a petroleum sector master plan will be completed — the structural thesis breaks and the industry's diversification path opens. If it does not, the tariff relief will prove to be a holding action rather than a recovery.
What to Watch
In the short term, watch the quarterly import data. If duty-paid volumes fall back toward the 2022 baseline of roughly 1,600 tonnes per half-year, the DBRP adjustment is working; if they stay above 50,000 tonnes per quarter, the $785 benchmark is still too low. In the medium term, watch Tongaat Hulett: the milling giant narrowly escaped liquidation in June 2026 after the Industrial Development Corporation and Vision Group reached a rescue deal safeguarding an estimated 250,000 jobs in its operations and value chain, and its cane deliveries are a barometer of mill-level stability. In the long term, watch the petroleum sector master plan and any gazetted ethanol blending mandate: that decision, not the tariff, will determine whether the industry diversifies or continues to fight the last war.
The asymmetry of exposure is clear. Downstream beverage manufacturers benefit from cheaper imported sugar in the short run, which is why their lobby pushed ITAC for a lower reference price; growers and millers bear the full downside of a broken mechanism. If the mandate never comes, the rational response for a grower is to exit cane for macadamias, timber or housing development — the same land-use shift that has already cut harvested area from 255,000 hectares in 2024-25 to a forecast 253,000 hectares in 2026-27. Once that land is gone, no tariff adjustment can bring it back.
The tariff fix stops the bleeding; only an ethanol mandate can give the industry a future. South Africa has just treated the symptom while leaving the disease in place.
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