SACSMA South African Chocolate & Sweets Manufacturers Association

1. SACSMA South African Chocolate & Sweets Manufacturers Association Presentation of Sugar Industry Issues to DTI and DFA Parliamentary Portfolio Committees 8 September 2004

2. AGENDA Introduction Page 3 Our Approach Page 5 Interested & Affected Parties Page 6 Objectives Page 7 Sugar Confectionary Imports Page 8 - 10 Compliance Enforcement Page 11 The Facts Page 12 Current SACSMA Initiatives Page 13 Page 13 Conclusion Page 14

3. INTRODUCTION SACSMA is proud to make this presentation through the chairpersons of the Portfolio Committees on Foreign Affairs, and Trade and Industry. On behalf of stakeholders within the sugar industry of South Africa, SACSMA wishes to highlight the state of the local industry and initiatives underway with a view to these making a substantive impact on certain bilateral and multilateral Free Trade Agreements. Guidance and constructive input is welcome and we wish to reaffirm our commitment toward the principles of our democracy and to uphold the Constitution of South Africa.

4. INTRODUCTION TO SACSMA • SACSMA is a voluntary organisation that engages in projects and / or issues that impact on the industry • It is a special interest group that falls under the umbrella body, The Consumer Goods Council of SA (CGSA) • SACSMA represents over 90% of the productive confectionery capacity in SA

5. OUR APPROACH • SACSMA : • Offers its full support to Government to create and enforce legislation • Will work with relevate regulatory authorities to enable an efficient and effective mechanism to effect compliance enforcement • Is appealing to Government to address the current plight of the SA confectionery Industry wherein jobs and state revenue are being lost

6. INTERESTED & AFFECTED PARTIES • SACSMA IS CHAMPIONING OTHER INTERESTED AND AFFECTED SUGAR INDUSTRY PARTIES • Sa Cane Growers Association • SA Sugar Millers Association • SA Sugar Association • SA Glucose Manufacturers • SA Packaging Manufacturers • SA Labour • SA Revenue Service

7. OBJECTIVES • Raise awareness of the issues facing the sugar industry as a whole; and the confectionery industry specifically • Current initiatives on Free Trade Agreements should be seen within this context

8. SUGAR CONFECTIONARY IMPORTS Tariff Heading 1704.90 • The volume of imported sugar confectionery has surged significantly in the calendar year 2003 and year to date 2004. • A total of 27000 tons was imported in 2003 which represents 30% of the local market. This is up from 7% in 2002. • Jan to Aug 04 imports are already at 25 400 tons. At this run rate, 2004 will see 38 000 tons imported. This is a growth of 355% vs 2002. Annual Volumes +355% Source: SARS (Customs Declarations) 2004 YTD Ave Monthly x 12

9. SUGAR CONFECTIONARY IMPORTS Tariff Heading 1704.90 • SACSMA estimates a 28% reduction in jobs since 2002. It is estimated that 9500 people are employed in the SA Confectionery industry. • In 2003: • SASA report a -17% reduction in sugar sales to confectionery manufacturers • Packaging suppliers report declines up to -12% to confectionery manufacturers • Glucose sales to the confectionery industry decline by -15% Monthly Volumes Source: SARS (Customs Declarations)

10. SUGAR CONFECTIONARY IMPORTS by Country of Origin : From Jan 2003to Jun 2004 (Tariff Code : 1704.90) • Sugar Price per ton: • Brazil : US$160 • SA : US$480 • Sugar is 42% of the total raw material cost of sweets production. • Sugar price in Brazil is subsidised. • Sugar pricing in SA is governed by legislation viz. the Sugar Act and the Sugar Tariff. Brazil 72% Columbia 9% Source: SARS (Customs Declarations)

11. SA has a poor track record of compliance enforcement • Imported sugar confectionery into SACU attracts a 25% ad valorem duty. • The average declared FOB value is lower than the true value of confectionery imported from Brazil. • *True value has been confirmed by the local industry importing themselves, as well as multi-nationals (eg. Mars) based in SA who have operations in Brazil. • This practice of duties evasion, has led to imports being significantly cheaper than local producers, resulting in material injury to the local industry. FOB Value of Sugar Confectionery Imports from Brazil in 2003 (Rand/kg) • International Trade Centre ** • Brazil : SA Trade in 1704.90 (2002) Brazil Export SA Import Volume 8 602 8 644 US$/Ton 759 376 True Value* Declared Value ** ITC : a joint subsidiary body of the United Nations and the World Trade Organization

12. THE FACTS • The local confectionery industry is worth R7-billion • The local sugar industry is worth R6-billion • Direct employment in the sugar industry totals 130 000 jobs. Direct + Indirect jobs = 240 000 • Sugar makes up 42 percent of sweets’ raw material cost • Brazil, the EU, Australia, Thailand & the Caribean effectively supply 70% of the world’s free market sugar

13. CURRENT SACSMA INITIATIVES • Joint working commision with SARS • Preparing a dual tariff application for ITAC • Preparing an anti-dumping application for ITAC • Broad industry awareness campaign • Representation to Dept of Agriculture as input into proposed FTA’s (US & Mercosur) • Inputs into review of sugar legislation • Persuance of strict food safety legislation enforcement with Dept of Health

14. CONCLUSION • SACSMA offers its full support to Government to create and enforce legislation • Current initiatives on Free Trade Agreements should be seen in light of : • Current plight of SA confectionery industry • Loss of jobs • Loss to the Fiscus • Compliance enforcement • Evasion of duties • Rules of Origin • Uneven playing fields • Subsidised input costs in Brazil • Protection of local sugar industry

15. ADDITIONAL INFO • For information, previous Chairmen have been: 1979 – 1998 Arnold Zulman (Beacon) 1998 – 2001 Cobus Roussouw (Cadburys) 2001 – 2002 Wayne England (Nestlé) 2003 – present Neil Brimacombe (Tiger Brands) • SACSMA Contact details: P O Box 41417 Craighall 2024 Tel: (011) 886 3008 Fax: (011) 886 4966 Chairman: Neil Brimacombe Tel: (011) 305 2330 Cell: 082 561 9433

16. THANK YOU • We look forward to any opportunity to work closely with government to find workable solutions to address the challenges of the local sugar industry together