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South Africa sugar tax to cut industry revenues, prompt reform -USDA

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03/14/2019 | 03:31am EDT
A worker shows sugar after the processing of sugarcane in the Coopevictoria sugar mill in Grecia, Costa Rica

NEW YORK (Reuters) - South Africa's sugar tax could slash industry revenues and prompt restructuring of the country's sugar sector, the U.S. Department of Agriculture (USDA) said in a report published on Wednesday.

The tax, introduced last April, has slashed the beverage sector's use of sugar by 30 percent, the USDA attache in Pretoria said, marking a major win for health advocates who have sought to curb sugar consumption in an effort to fight health epidemics of obesity and diabetes.

The initial law imposed a tax of 2.1 cents on beverages for every gram of sugar in excess of 4 grams per 100 milliliters. Last month, the government raised the tax to 2.21 cents per gram, a 5 percent increase.

The sugar tax could reduce the sugar industry's revenues by up to $129 million in the 2018-19 marketing year and in turn reduce prices paid to sugarcane growers, the USDA report said, citing industry.

Even without the tax, South Africa's sugar sector had been beleaguered by low futures prices, competition from imports and droughts.

"The current crisis in the sugar sector may be an opportunity for the industry to restructure and for government to reconsider the support measures it should be providing to the industry," the USDA report said.

The tax could also present an opportunity for some U.S. exporters of alternative sweeteners as well as to beverage manufacturers capable of reformulating their products to contain less than the 4-gram threshold, the USDA said.

On Monday, shares in South African sugar producer Tongaat Hulett Ltd fell more than 14 percent to trade at their lowest level since 1993. Shares of the struggling company fell after its chief executive said last week that a review of past accounting practices at the company could affect previously reported financial information. [nL8N20Y1A1]

In October, raw sugar from South Africa made a rare appearance in the cash delivery against an ICE Futures U.S. contract, often seen as a buyer of last resort. [nL2N1WH0P4]

(Reporting by Ayenat Mersie; editing by Jonathan Oatis)

By Ayenat Mersie

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