Thanks to an undisclosed amount of money procured from the government, Tongaat Hulett will live to take on another production season. Although the win provides some relief, small-scale sugarcane growers in KwaZulu-Natal (KZN) aren’t out of the woods just yet.
The embattled Tongaat Hulett has acquired “post-commencement finance” from the Industrial Development Corporation of South Africa (IDC). The cash injection, the sugar company said, is enough to fund capital requirements to complete the current season and get operations ready for the next season.
Tongaat Hulett has been placed under business rescue due to a debt burden of about R6.3 billion.
But the troubles keeping KZN sugarcane growers up at night, run far deeper than the financially distressed Tongaat Hulett.
As it stands small-scale sugarcane growers are barely meeting basic operational costs on their farms. This is impacting their livelihoods and growth.
Soaring fertiliser prices
According to Dr Siyabonga Madlala, CEO of the South African Farmers Development Association (Safda), farmers are forced to contend with rising fertiliser prices, which form a big chunk of operating costs.
“A key cost driver in small-scale grower production is fertiliser which accounts for 15-18 % of production costs… This situation has been exacerbated over the past 36 months with fertiliser prices having tripled during the period because of world economics,” Madlala stated.
Due to this expensive cost, farmers are either unable to procure fertilisers on time, or fail to secure enough for their fields.
“And the lack of adequate and timeous fertiliser application on ratoon fields due to the cost of fertiliser inputs is the main factor affecting poor yields,” Madlala said.
Sugarcane farmers in KZN are, however, in for a major fertiliser boost worth R99 million. This follows a visit to Mpumalanga farmers in December last year during which fertilisers and a cheque to the tune of R42.2 million were handed over to the Nkomazi small-scale sugarcane growers.
ALSO READ: Sugarcane farmers ‘rescued’ in the nick of time
Mill closures a ‘bigger’ problem
What is making matters worse for these producers are the closure of strategically located sugarcane mills in the province.
In 2020, Tongaat Hulett closed down its Darnall Sugar Mill. Merely weeks thereafter, Illovo Sugar South Africa announced the suspension of operations at its Umzimkulu Sugar Mill.
“Mill closures Darnall and uMzimkhulu have affected the crushing capacity of the milling sector, where small-scale grower cane is not being crushed and carried over,” said Madlala.
The problem with this is that existing sugar mills are centred around large commercial farms. The small-scale farmers who primarily farm on communal land are the furthest away from most mills, Madlala explained.
“Historically, where a few more sugar mills existed in the rural sugarcane farming areas like Entumeni, the larger corporate sugar milling companies took over these smaller mills, then closed them down, directing cane production to their preferred larger sugar mills.”
According to Madlala, “spatial disparity between the small-scale fields and the mill was one of the key drivers of growers losing much- needed revenue.”
Which is why Safda is pursuing a strategy to build modern, efficient mills and ethanol distilleries, as well as sugarcane biorefineries. Madlala said they envisioned to do this in the heart of South Africa’s small-scale agricultural producing areas.
The sugarcane industry in KwaZulu-Natal is an important player in job creation and small-scale farmer development. The cane growing sector comprises about 21 512 registered sugarcane growers farming in KZN and Mpumalanga.
Farmers need a long-term plan
Meanwhile, Simon Cleasby, the spokesperson for NewCo, a grower-led consortium interested in buying Tongaat Hulett, said the business rescue practitioners’ success in securing funding, while critical, is not enough to save Tongaat Hulett and the livelihoods that rely on its operations.
“More than loans, Tongaat Hulett needs a plan to restore its operations to profitability, thereby making them sustainable in the long-term.
“While the funding to complete the current season is good news for growers, the 2023 season begins in four months. Growers have carryover cane of more than 500 000 tons from this season that must be crushed next season to provide much-needed operating cashflow,” Cleasby pointed out.
For farmers to have any chance of survival, Tongaat Hulett needs to make known their plans for the upcoming season and finalise operational plans for future seasons, Cleasby said.
“Despite the clear need for long-term certainty, there has been no indication about the direction the business rescue practitioners are considering in addressing the miller’s problems in the longer-term,” he added.
NewCo ready to jump in
Securing Tongaat Hulett’s future will require extensive work with significant investment, and NewCo seems to be up for the challenge.
NewCo is a consortium of growers delivering more than five million tons of sugarcane to the Tongaat Hulett mills on the north coast of KwaZulu-Natal.
The consortium has submitted to the business rescue practitioners an expression of interest in acquiring the company’s South African mills, refinery, animal feeds subsidiary, and other brands and trademarks.
Cleasby said they urged the business rescue practitioners to begin engagements urgently.
“Vital livelihoods on the north coast of KwaZulu-Natal and throughout the value chain depend on the successful rescue of Tongaat Hulett’s South African operations.”
Sign up for Mzansi Today: Your daily take on the news and happenings from the agriculture value chain.
