Growers with Tongaat Hulett supply agreements are using the ‘best brains’ in the business to conduct due diligence on a recently announced deal allowing commercial, land reform beneficiaries, and small-scale growers a stake in the company’s milling and refining operations.
A further plan by South Africa’s sugar company Tongaat Hulett to diversify its agri-business by offering growers a minority stake in its milling, refining and distribution operations is now under scrutiny by a group of sugarcane farmers, with the hope of a resolution by Christmas.
The offer comes on the back of the sugar industry facing a number of challenges over the past few years, compounded by a forensic audit which revealed accounting irregularities at the company over a number of years and a request earlier this year to suspend trading on the Johannesburg Stock Exchange. The company also delayed the release of its annual financial statements.
In a bid to shore up the business while simultaneously answering the South African government’s directive for improved and increased land reform in the sector, two deals have been launched by the company’s CEO Gavin Hudson.
Tongaat Hulett CEO Gavin Hudson.
The first – already at an advanced stage – has resulted in the establishment of FarmCo, which aims to “transition” the farming of the South African sugar operation’s land with future development potential to mostly previously disadvantaged growers. The second offers growers a minority stake in their milling, refining and distribution operations.
Phase one of the FarmCo setup was the establishment of Uzinzo Sugar Farming to allow designated shareholders to lease 3 900ha of prime land at a below market-related rental, producing 160 000 tons of sugarcane.
The entity is headed by three existing growers who have a 65% shareholding, with a 15% stake allocated to employees and the remaining 20% going to Tongaat Hulett. And it is also here that the company hopes some of the thousands of staff retrenched over the period will have an opportunity for re-employment.
Explaining the second initiative, Hudson said in a statement released on 25 October that strategic assets owned by the company’s South African sugar operations would form the initial assets in the business, which included four Tongaat Hulett-owned mills, its stand-alone refinery and its animal feed business. The entity would include the production of sugar related products, such as speciality sugars, syrups and liquids.
“For many years, growers have called for equity participation in the milling and refining business, which would allow for their increased participation in the sugar industry value chain. The initiative is providing this opportunity, which is revolutionary for the industry,” he said.
It was envisaged the transaction would be completed by December 2019, he added.
Responding to the offer, growers who attended the launch of the mill deal said despite the challenges facing the sugar industry, it was critically important that an agreement was reached that would not only protect employment but also the sector’s contribution to both the national and regional economies.
“It’s a case of being ‘damned if you do, and damned if you don’t’,” one grower said.
Tongaat Hulett’s Felixton mill which will be included in the sugar group’s new plan to include growers in the company’s milling and refining business.
“If we all walk away and allow the industry to collapse, that means massive job losses and an impact on the agricultural economy, from which it would be very hard to recover. Many of us would not be able to farm anymore. There is no way that all the land under sugarcane in KwaZulu-Natal can be converted to macadamia orchards, there is not enough water for that and not all of the land is suitable for growing the crop.”
The impact on the livelihoods of thousands of rural people who depend on the income from sugarcane to pay their household expenses, including school and university fees, he added, would be far-reaching.
“The fact is 119 000ha of sugarcane is grown in Tongaat’s catchments in KwaZulu-Natal. You can’t just decide that production is not important to the economy. We can’t let that go without a fight and we can’t just sit back and say it is not our problem. It is our problem and all growers are being consulted on the proposed deal. We are in the due diligence process now. We are investigating the proposal using some of the brightest minds we can find both here in South Africa and abroad. We won’t settle for something we believe will fail, but rather, we want to make sure we come up with a deal that is destined for success and has the potential to build our economy and the agricultural sector in the country,” he said.
