About 5,500 sugar workers in South Africa plan to strike tomorrow demanding an 11 percent increase in pay, in the first industry-wide stoppage since 1997.
Employers including Illovo Sugar Ltd. (ILV) and Tongaat Hulett Ltd. (TON), Africa’s two biggest producers, have offered raises of 8.5 percent, meaning the two sides are “relatively close,” Tongaat Chief Executive Officer Peter Staude said in an interview today.
The strike “has been insisted on by members because they want a double-digit increase,” Food and Allied Workers Union General Secretary Katishi Masemola said by phone. “It’s a figure that workers believe they deserve.”
South Africa is already beset by its longest and most costly mining strike, which began four months ago when platinum workers walked off the job at Anglo American Platinum Ltd. (AMS), Impala Platinum Holdings Ltd. (IMP) and Lonmin Plc, the world’s biggest producers of the metal. The stoppage is hampering economic growth, Gill Marcus, governor of South Africa’s central bank, said last week.
The lowest-paid sugar employees currently receive about 5,500 rand ($531) a month, Masemola said. Inflation was 6.1 percent in April, according to Statistics South Africa. The strike is protected by the nation’s laws, meaning workers can’t be fired.
The FAWU, which plans to strike with two other unions, is also requesting a 40-hour working week, a monthly housing subsidy of 800 rand and permanent employment of fixed-term contract staff. A further 5,000 contract workers may join the strike if they are protected by law, Masemola said.
“We still hold out hope we’ll be able to resolve this issue prior to tomorrow,” said Gavin Dalgleish, the managing director at Illovo, where 1,346 plan not to report for duty.
Tongaat will mitigate the effect of the strike by running its mills longer at the end of the year if needed, Staude said. They normally stop running in November, he said. Illovo will build stockpiles and “slow down the supply chain to the sugar mills,” Dalgleish said.
The strike in 1997 lasted 10 days, he said.
The rand weakened 0.5 percent against the dollar to 10.3464 at noon in Johannesburg, the first decline in four days.
Illovo’s net income increased 6.5 percent to 916 million rand in the year through March as production climbed, while Tongaat’s earnings rose 7 percent to 1.16 billion rand after a boost from land sales in KwaZulu-Natal province, the companies said in separate statements today.
Sugar prices fell 42 percent over three years through 2013 on NYSE Liffe after growers from Brazil to Australia raised output, leading to a global surplus. That made the sweetener cheaper to import to South Africa and harmed local producers. Illovo has sought to mitigate the impact by diversifying its business into alcohol-based products while Tongaat is selling land near Durban for residential development.
“Sugar is a cyclical commodity and we are currently at the bottom end of the cycle,” Mount Edgecombe, South Africa-based Illovo said. “We expect this cycle to turn in the short to medium term and thus benefit from the huge growth in Africa.”
South Africa raised the dollar-based reference price of sugar last month, meaning importers will have to pay tariffs on shipments for the first time in four years.
Imports of sugar “dried up” in April and May, meaning the tariffs are working, Tongaat’s Staude said.
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