Over 14,000 jobs at risk as Tongaat Hulett misses payment deadline
FIFI PETERS: Let’s see what is happening in the sugar industry. You will recall that last week we had the decision of a major sugar producer in the sector, Tongaat Hulett, to undertake a rescue operation. He said he had to. She is heavily indebted and struggling to find new lenders. Even his existing lenders were struggling to justify how they could give him more money and where Tongaat’s ability to repay the money would come from. This resulted in the company entering bailout.
This has left a bitter taste in the mouths of a few players, especially the small cane growers who also supply Tongaat with sugar. They were due to receive payment for providing these services in September, but Tongaat missed out on that R400 million payment which was due to around 4,300 sugarcane farmers. He missed it yesterday I think due to the corporate rescue actions which kind of gave him some leeway to meet his financial responsibilities while the corporate rescue practitioners back -plan are trying to put Tongaat on a stronger footing so they can eventually pay whoever they owe.
At this stage, it is also not so clear that those cane growers who are owed by Tongaat, certainly for the month of September, will even get the payment owed 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 to find out more. I’m playing the pun here in terms of ‘bittersweet’, but it’s quite a bittersweet taste that Tongaat has left in the mouths of the cane farmers who supply it with sugar. Can you give us an idea 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 summed it up very well. There is certainly a bitter taste in the mouths of sugarcane growers. Starting from [past] growers actually stopped delivering sugar cane to Tongaat over the weekend, which forced the factory to shut down, just because they’re not even sure if they’ll be paid for everything. they deliver. So for now, farmers are sitting on their cane and hoping that this business bailout situation will reopen the mills fairly quickly and that creditors will be paid so that business can resume as normally as possible.
FIFI PETERS: How much cane growers are due at this stage by Tongaat?
DR THOMAS FUNKE: We were going through the numbers and at the end of September they got what they were owed.
The method of payment is that you get paid for all the sugar cane you deliver, always at the latest price. So, at the end of September, they were paid around 2 billion rand, and that was for all the cane they delivered to date. And then at the end of October there is a payment due which would be an additional R400m on top of what they had been paid in September. This is therefore the amount that has not been paid.
As a result, producers do not deliver sugar cane. At present, they are owed R400 million owed to them for sugar cane that has already been converted into sugar, and that is basically sugar that sits on the shelves and what is sold to customers.
FIFI PETERS: As an association you are due to meet the Tongaat business rescue partners tomorrow [Wednesday]. Help us understand how this meeting is going to unfold. What’s on the agenda, in mind?
DR THOMAS FUNKE: I think at first it’s probably a meeting to see who they are and what their plan is. But what we certainly want to do is just elaborate on the impact that closing the mills may have on the extended rural areas of KZN, especially on the northern coast.
Tongaat is active in terms of sugarcane harvesting in 18 small towns spread across the North Coast and Zululand. Our figures show that farmers in these areas employ around 15,000 people; this is in addition to the 4,300 producers who own these companies.
So if Tongaat doesn’t pay farmers for the sugarcane they delivered, and if they don’t open their doors again to crush the rest of the season’s crop, growers will have to close their farms.
They will likely enter into the situation of rescuing their own business, which will lead to massive job losses. That’s really what concerns us – the huge impact this could have.
FIFI PETERS: I imagine you don’t expect this business rescue process to be over overnight. It takes time, if we look at what we’ve seen of other companies that have entered the corporate bailout. In this time frame, how long can some cane growers last?
DR THOMAS FUNKE: That’s a very good question. When you’re working around the clock with finance, also on the agriculture side, to explain to them the situation and how serious it is, and that they should look at their customers and see what options there are to them, I fully understand that this does not happen overnight.
There are timelines, and we just received a section 129 notice from these practitioners to try to explain what the rights are and what timelines they are working towards.
Hopefully we can stick to those timelines and then there will be a bit more certainty as to when hopefully operations can resume or the company will be sold or whatever the outcome of this process.
So I think what’s really critical for us is certainty of the process and the timelines, and sticking to them, so that we can plan accordingly.
FIFI PETERS: And then what about other sugar producers in the industry, like Illovo and I think [but] I correct myself, Crookes Brothers, also RCL Foods with their Selati brand. Aren’t they able to provide enough work for the cane growers while Tongaat is away?
DR THOMAS FUNKE: No. They have their own producers in their own factories that supply them. So they are working 24 hours a day. The sugar cane is being delivered right now. Sugar is manufactured, packaged, sold.
We therefore do not foresee an immediate problem on the supply side. There is still quite a bit of cane left to grind this season. The mills don’t have to close until December, just before Christmas, so it’s running at full speed, and it’s helping to supply the market.
Unfortunately, sugarcane is a commodity that you cannot transport over long distances. It is a low value bulk product. So your radius, the economic transport distance, is about 60 km, 40-60 km.
This is how close you need to be to a mill to viably deliver your harvest. The Illovo mills, for example, are further away. RCL Mills are in Mpumalanga and northern KZN so they can’t really help. And they are full, as it is. So the problem is really on the north coast and in Zululand, and that needs to be addressed.
FIFI PETERS: So if the supply in the immediate future shouldn’t really be significantly impacted, is the same for the price? Should we as sugar consumers be worried about what the Tongaat trade bailout means for the price we pay for our sugar?
DR THOMAS FUNKE: At this point, I don’t think we have anything to worry about. The sugar industry has a fairly regulated system, and one of the strategic pillars of the sugarcane value chain was to keep the price of sugar at the CPI – and that is what the industry did. .
So the prices on the shelves won’t really increase dramatically now, because the transfer price between growers and millers has been fixed and it won’t change.
So even if the supply dries up, I think the risk is more that sugar from elsewhere could enter the country – and with the weak rand and high world prices, that sugar would be much more expensive. So once that sugar hits the shelves, you would obviously see an increase in price. But if it’s not South African sugar, I don’t think there’s really much to worry about at this point.
FIFI PETERS: OK. Dr. Thomas, we’ll leave it at that. We will certainly be monitoring any statements you may or may not release regarding your engagement with business rescue practitioners in Tongaat tomorrow, just to keep an eye on this story. Dr Thomas Funke is the COO of the South African Cane Growers Association.