Too much at stake for the sugar industry to let Tongaat Hulett fail

SA will miss many opportunities if the company cannot secure the funding that it needs to survive

The decision by the board of Tongaat Hulett to enter its SA operations into voluntary business rescue has potentially catastrophic consequences for the sugar industry and the thousands of livelihoods it supports.

In the immediate aftermath of the decision there was an urgent focus on the payment of funds due to growers. Though suitable payment terms have been reached in the short term, it would be a mistake to ignore the long-term implications of Tongaat Hulett closing permanently, and the opportunities SA will miss if the company cannot secure the funding it needs to survive.

On account of the business rescue process, Tongaat Hulett lost access to its bank accounts. As a result, it was unable to pay more than R400m due to 4,300 growers at the end of October. The consequences of nonpayment would have been catastrophic. Thankfully, the payments have been made, albeit late, and an agreement has been reached on the payment of an estimated R345m that will become due at the end of November. But the payment agreement, while much welcomed, is only part of what is required to sustain the industry.

As the season wraps up — and if Tongaat Hulett is going to operate next season — there is off-crop maintenance work that needs to start taking place now to prepare for the new season. Failure to do this work will undermine the ability of Tongaat Hulett to effectively service its customers and support the growers, workers and communities that rely on it.

SMALL TOWNS

Tongaat Hulett operates mills in Felixton, Amatikulu and Maidstone that support economic activity in more than 18 small towns. More than 12,600 growers supply these mills, and more than 12,000 of these are small-scale growers. Together these growers sustain vital livelihoods in KwaZuluNatal’s rural communities along the north coast and Zululand. These and many more value chain jobs are at stake if Tongaat Hulett does not operate next season.

And then there ’ s the longerterm question of whether Tongaat Hulett will emerge from business rescue. The consequences of its demise are too ghastly to contemplate.

Until recently, SA had 12 operational mills, including the affected Tongaat mills. Their geographic location is not haphazard — they are spaced out so that most growers can access a mill within 60km. This is essential for maintaining cane quality. The issue is therefore not as simple as moving Tongaat-supplying growers to other mills; Tongaat’s failure would decimate the canegrowing industry in the north coast of KwaZulu-Natal.

In a province hit by successive crises, including Covid-19, the unrest in July 2021 and the floods of April this year, it is not difficult to conceive of the social upheaval such a failure would cause.

The success of Tongaat Hulett also has critical ramifications for non-Tongaat growers. The industry as a whole has expended great resources and effort to protect local growers from the corrosion of the local market as a result of cheap sugar imports. Were the Tongaat Hulett supply to disappear, the industry would once again find itself vulnerable to calls for lower tariffs to supplement local production. Having worked so hard to protect the 1-million SA livelihoods the industry sustains, we could see these hard-won gains lost in the blink of an eye.

The picture is bleak; there’s no sugar-coating it. Yet it would be a mistake to focus only on the bad and miss the opportunities that abound if we can all work together to help save Tongaat Hulett. Sugar industry stakeholders have collaborated over the past two years to implement the Sugarcane Value Chain Masterplan. Under the plan we are working to restructure the industry for the future. We have already seen successful campaigns to restore demand for locally produced sugar, like SA Canegrowers’ Home Sweet Home campaign.

Through measures such as the International Trade Administration Commission of SA tariff on imported sugar, we’ve been able to stem the flood of cheap sugar imports. As a result of these interventions some of the independent mills are enjoying the fruit of a successful season despite challenges including the alarming inflationary increases in the cost of agricultural inputs.

Over the past two years the industry has invested more than R400m in funding the advancement of transformation in the sector. This is part of a commitment to invest R1bn into transformation over five years. This commitment is reflected in the numbers: of SA Canegrowers’ more than 22,000 members, more than 21,000 are small-scale growers.

At the same time, work is under way to enable the diversification of the sugar cane value chain into exciting new products like sustainable aviation fuels. Here too there is a role for players like Tongaat Hulett to be part of the shift towards the industries of the future. It is therefore not only beneficial to cane growers and Tongaat Hulett shareholders, but also the government, the national economy and funders, to invest in the resuscitation of this critical institution in KwaZulu-Natal’s rural communities.

Far more than grower payments therefore hangs on the success of the Tongaat Hulett business rescue process. The evolution of the industry, the protection of livelihoods and the creation of new opportunities into the future hang on it. SA Canegrowers will certainly continue working with the business rescue practitioners and support them to the best of our ability, but there is little we can achieve if the government and lending institutions do not come to the party, ready to provide support in this critical hour.

It is a huge relief to growers and local communities that payments have and will be made in the short term; failure to do so would have been catastrophic. But we must not see this as the end goal, which should be the resuscitation of Tongaat Hulett in recognition of its critical role in determining the future success of the SA cane-growing industry.

THERE IS LITTLE WE CAN ACHIEVE IF THE GOVERNMENT AND LENDING INSTITUTIONS DO NOT COME TO THE PARTY