Sugar farmers ‘living in anxiety’
It has been 18 months since Tongaat Hulett collapsed and entered business rescue
From old and ailing milling infrastructure to sub-operational millers who cannot ensure payment for the sugarcane crop they receive, the South African sugar industry is in dire straits.
It has been over a year and a half since the event that changed the face of the sugar industry: Tongaat Hulett’s collapse. Sugarcane farmers, big and small, are still reeling from the aftermath of the biggest miller entering business rescue.
“There is always anxiety when dealing with a mill that is in business rescue, at any time it could be troubled,” Pratish Sharma told the Mail & Guardian.
Sharma is a commercial sugarcane farmer who directly supplies Tongaat Hulett. He said as long as farmers are delivering sugarcane to a company that is not liquid, it is difficult to work with any confidence.
Tongaat went into freefall after balance sheet fraud, allegedly carried out by former chief executive Peter Straude and other managers, was discovered, forcing the miller to sell off properties and farms to reduce its debt.
Tongaat Hulett entered the business rescue process in October 2022. Gledhow Sugar Company followed in April 2023.
“It was the first time that the industry dealt with a miller in business rescue,” Sharma said.
“Even though we have so many professionals employed by the industry, they were not able to fully grasp the gravity of the situation because it was something unthinkable. Nobody ever thought a miller could go into business rescue and then we get two of them at the same time. It threw the industry into turmoil.”
Tongaat Hulett’s business rescue plan has been approved by creditors.
The company has also secured itself a buyer, the Vision Partners consortium, but the problems ailing the business have yet to be resolved.
The consortium — made up of Guma Agri & Food Security Group, Zimbabwe’s Remogogoo Investments, the Terris Fund and Pakistani sugar giant Almoiz — will take over the business after assuming Tongaat Hulett’s R8 billion debt through a partial debt-for-equity swap arrangement.
Tongaat Hulett can only exit business rescue once the approved plan has been substantially implemented or if the company is no longer financially distressed.
Questions have arisen over unpaid levies and Vision’s commitment to pay them, but these have yet to receive answers.
The SA Canegrowers and the South African Sugar Association (Sasa) went to court to compel Vision and rival bidder RGS to incorporate the payment of the industry levies into their business rescue plans. This was after the high court ruled that the business rescue process had to accommodate payment of the levies. The levies subsidise growers who provide sugarcane to Tongaat for milling and ensure that there is profitability along the sugar value chain through payments to growers via Sasa.
Tongaat defaulted on payments between the end of October 2022 and the end of March 2023. Tongaat and Gledhow’s failure to pay more than R1.5 billion due to Sasa resulted in an 8% drop in the RV price (the price that growers receive for the cane processed).
Another challenge for farmers is that they may not be aware of the intricate financial processes at the mill that could affect them, Sharma said.
The business rescue practitioners have called sugarcane growers to explain the process. They have also explained how funding was raised to pay the farmers, Sharma said.
“But, that the business remains in business rescue means there is always an underlying anxiety.”
Vision Partners said it could not speak to the M&G due to the ongoing business rescue process.
Meanwhile, the sugar industry is consolidating, assisted by the government making the SA Farmers Development Association (Safda) a permanent member of the industry regulatory body, Sasa.
Safda chairperson Siyabonga Madlala said black and smallscale farmers in the industry face significant challenges, including inadequate recognition, limited access to resources and opposition from larger farmers.
On the state of the sugar industry, Madlala said the country’s sugar mills are old, inefficient and unable to maximise production and profits.
“We have big and old infrastructure; similar to what happens at Eskom where the breakdowns are the order of the day,” Madlala said.
He said that if the mills can obtain investment and be efficient “a lot could change in this country”.
Farmers, and specifically black farmers, need investment, Madlala added. “They are not emerging. They emerged a long time ago and all they need are resources closer to them. If investment happens at the mills and the farmers’ cane is crushed, it secures their future.”
On the point of ageing and inefficient mills, Sharma said the business rescue practitioners have emphasised the maintenance and recapitalisation of the Tongaat mill.
Damaged equipment has been disposed of and replaced with new equipment, he noted.
“What we saw last season at Tongaat was much better efficiency at the mill. The mill worked better than it had 10 seasons prior. We are expecting production to be better this season,” Sharma said.
“We are grateful that our mills are getting the assistance they need. Anything that threatens the existence of our mills is a threat to us. We are very anxious about the future of our mills.”
‘We have big and old infrastructure; similar to what happens at Eskom where the breakdowns are the order of the day’