FIFI PETERS: Let’s get into what is happening in the sugar industry. You’ll recall that last week we had the decision coming out of a big sugar producer in the sector, Tongaat Hulett, that it was going into business rescue. It said it had to. It has a whole lot of debt and it was struggling to find new lenders. Even its existing lenders were struggling to justify how they could give it more money, and where the ability of Tongaat to repay the money would come from. This resulted in the entering of business rescue of the company.
This has left a bitter taste in the mouths of a few players, particularly the small-scale cane growers who also supply Tongaat with sugar. They were due to receive payment for providing these services in September, but Tongaat missed that R400 million in payment that was due to around 4 300 cane growers. It missed it yesterday, I think as a result of the actions of business rescue that have kind of given it a bit of wiggle room in terms of meeting its financial responsibilities while the business rescue practitioners in the background try to get Tongaat on a more solid footing so that it can eventually pay whom it owes.
At this stage it’s also not so clear whether these cane growers who are owed by Tongaat, certainly for the month of September, will even get the payment due to them for the month of October.
We have the CEO of the South African Cane Growers Association, Dr Thomas Funke, on the Market Update for more. I’m playing with puns here in terms of ‘bitter sweet’, but this is a pretty bitter taste that Tongaat has left in the mouths of the cane growers who supply it with sugar. Can you give us a sense of what has happened to them so far, and what Tongaat going into business rescue will mean for them?
DR THOMAS FUNKE: Yes. Good evening. You’ve summed it up very well. There’s certainly a bitter taste in the mouths of the sugar-cane growers. As of this [past] weekend, the growers actually stopped delivering sugar cane to Tongaat, and that has forced the mill to a grinding halt, simply because they are not sure that they’re even going to get paid for anything they deliver. So at the moment the farmers are sitting on their cane and hoping that this business rescue situation opens the mills again relatively soon, and that the creditors get paid so that business can resume as normal as possible.
FIFI PETERS: How much are the cane growers owed at this stage by Tongaat?
DR THOMAS FUNKE: We were running through the figures, and at the end of September they were paid what was due to them.
How the payment works is you get paid for all of the sugar cane that you deliver, always at the latest price. So at the end of September they were paid around R2 billion, and that was for all the cane that they delivered to date. And then at the end of October there’s a payment due which would be an additional R400 million on what they had been paid in September. So that is the amount that hasn’t been paid.
As a result, the growers are not delivering sugar cane. At the moment they’re owed R400 million that is due to them for sugar cane that has already been converted into sugar, and that’s basically sugar sitting on the shelves, and what’s sold to customers.
FIFI PETERS: You as an association are due to meet with the business rescue partners of Tongaat tomorrow [Wednesday]. Help us understand how that meeting is going to go. What’s on the agenda, top of mind?
DR THOMAS FUNKE: I think at the start it’s probably a meet-and-greet to see who they are and what their plan is. But what we certainly want to do is just elaborate on the impact that the closure of the mills can have on far-reaching rural areas of KZN, especially on the North Coast.
Tongaat is active in terms of sugar cane being harvested in 18 little towns spread throughout the North Coast and Zululand. Our figures show that the farmers in those areas employ around 15 000 people; that is in addition to the 4 300 growers that own these businesses.
So if Tongaat does not pay the farmers for the sugar cane they’ve delivered, and if they don’t open their doors again to crush the remainder of the crop for the season, growers will have to close their farms.
They’ll go probably into their own business rescue situation, and that will mean massive job losses. That’s really what we’re concerned about – the far-reaching impact that this situation could have.
FIFI PETERS: I imagine that you don’t expect this business rescue process to be finished overnight. It takes time, if we look at what we have seen regarding other companies that have entered business rescue. In this time, how long can some of the cane growers hold out for?
DR THOMAS FUNKE: That’s a very good question. When you’re working around the clock with finances, also on the agriculture side, to explain the situation to them and how dire it is, and that they should be looking at their clients and seeing what options there are, I fully understand that this doesn’t happen overnight.
There are timelines, and we’ve just received a Section 129 notice from these practitioners to try and explain what the rights are and what the timelines are they’re working toward.
Hopefully we can stick to those timelines and then there’s a bit more certainty as to when hopefully operations can resume or the company is sold, or whatever the outcome is of this process.
So I think what’s really key for us is certainty on the process and on timelines, and sticking to those, so that we can plan accordingly.
FIFI PETERS: And then what about the other sugar producers in the industry, the likes of Illovo and I think [but] I stand to be corrected, Crookes Brothers, also RCL Foods with their Selati brand. Are they not able to provide enough work for the cane growers in the meantime while Tongaat’s out?
DR THOMAS FUNKE: No. They’ve got their own growers in their own mill areas supplying them. So they are working around the clock. Sugar cane is being delivered as we speak. Sugar is being made, it’s being packaged, it’s being sold.
So we don’t foresee an immediate issue with the supply side. There’s still quite a bit of cane to be crushed this season. The mills are due to shut their doors only in December, just before Christmas, so that’s going full steam ahead, and that will keep the market supplied.
Unfortunately sugar cane is a commodity that you can’t transport over long distances. It’s a high-bulk, low-value product. So your radius, the economic transport distance, is around 60km, 40-60km.
That’s how close you have to be to a mill in order to deliver your crop viably. Illovo mills, for example, are further away. RCL Mills are in Mpumalanga and northern KZN, so they can’t really help out. And they are full, as it is. So the issue really is in the North Coast and Zululand, and that has to be sorted out.
FIFI PETERS: So if the supply in the immediate term is not really expected to be impacted meaningfully, does the same go for the price? Should we be concerned as consumers of sugar as to what Tongaat’s business rescue means for the price that we pay for our sugar?
DR THOMAS FUNKE: At this stage I don’t think we need to be concerned. The sugar industry has quite a regulated system, and one of the strategic pillars of the sugar-cane value chain was to keep sugar pricing at CPI – and that’s what the industry has done.
So prices on the shelves won’t really increase dramatically now, because the transfer price between growers and millers has been set and it won’t change again.
So even if supply dries up, I think the risk is more that sugar from elsewhere could enter the country – and with the weak rand and the high world prices that sugar would be a lot more expensive. So once that sugar would hit the shelves, obviously you would see an increase in the price. But if it’s not South African sugar, I don’t think there’s much to be concerned about at this stage.
FIFI PETERS: All right. Dr Thomas, we will leave it there. We’ll certainly look out for any statement that you may issue, or not, regarding your engagement with the business rescue practitioners at Tongaat tomorrow, just to keep tabs on that story. Dr Thomas Funke is the COO of the South African Cane Growers Association.