On 30 September 2013, South Africa’s Department of Energy announced new mandatory blending requirements, whereby the country’s petroleum manufacturers need to add biofuel to all fuel sold to drivers. The targets are up to 5% blending for biodiesel and up to 10% for bioethanol, and manufacturers need to meet these levels when the new regulation comes into force from 1 October 2015.
Petroleum manufacturers will be required to pay a regulated price to biofuel producers, although the prices to be paid and government subsidy levels to be provided have not yet been determined. However, an Intergovernmental Biofuel Implementation Committee has been established to oversee the implementation of the policy.
The development of biofuel policy in South Africa has been under discussion since 2005, and a Biofuels Industrial Strategy was approved by the South African Cabinet in December 2007. Initially this focused on private-sector-led investment, but in the absence of a clear blending mandate there was little interest in commercial investment.
The use of maize as a feedstock in biofuel production is prohibited: canola, sunflower and soybeans are favoured as a feedstock in biodiesel production, and sugar cane, sugar beet and sorghum are used as a feedstock in bioethanol production.
According to analysis by the US Department of Agriculture (USDA), biofuel development in South Africa, as elsewhere in Africa, “can be an important new market for producers, and offers new alternatives to find different high-protein feed sources”. More specifically, according to a USDA review of the South African sugar sector, the introduction of a mandatory blending requirement is expected to open up new revenue streams for South Africa cane millers.
In the sugar sector the opening up of a new revenue stream through the introduction of mandatory blending requirements is likely to give rise to discussions over what revenue streams go into the common pool shared between millers and farmers, and how these revenues are to be divided between millers and growers.
At the level of sugar millers, it is widely recognised that enhancing and diversifying revenues is vital to reducing vulnerability to lower raw sugar prices. Hence, investments are variously being made in opening up new revenue streams for mills from electricity co-generation, ethanol production, alcohol production and even bottled water. To date, however, little attention has been paid to opening up new revenue streams for sugar cane farmers.
With issues related to pricing and government subsidies still to be determined by the Intergovernmental Biofuel Implementation Committee, there would appear to be scope for the South African government to set out provisions for mandatory contracts and inter-professional agreements between growers and millers, in ways that reduce the vulnerability of South African cane farmers to volatile raw sugar prices (for details of EU initiatives in this area, see Agritrade article ‘ Impact of CAP reform agreement on the sugar sector’, 6 August 2013).
This is of growing importance in South Africa as South African millers dispose of land from their sugar estates for highly lucrative property development, while seeking to support schemes for expanding smallholder sugar cane production. This is a strategy which de facto shifts the burden of adjustment to volatile raw sugar prices, away from the milling companies to smallholder farmers.
This issue of the pooling of income from new revenue streams and the distribution of such revenues between millers and growers carries a strong resonance not only across Southern Africa, but across all ACP sugar producers.