Tongaat Hulett’s collapse has implications far beyond a 134-year-old company brought to its knees. It could spell the end of the entire sugar industry on which hundreds of thousands of people in KwaZulu-Natal and Mpumalanga rely for their survival.
Tongaat’s three mills, in existence since 1850, have not only helped generations of growers crush cane and produce sugar for almost two centuries, but it is South Africa’s milling company with the largest standalone refinery producing white sugar.
This is more than consumer preference. Food producers, including soft drink, biscuit and sweet manufacturers, use white sugar due to its specific flavour profile. If sufficient volumes of white sugar are no longer available locally, they will be forced to import the deficit.
If the country’s largest confectionery and beverage manufacturers are compelled to buy foreign sugar, much of the market for South African sugar would disappear. The entire industry, from cane transporters to farm workers, would be profoundly weakened.
It is this crisis that demands decisive intervention by trade, industry & competition minister Parks Tau, working with the Industrial Development Corporation. In a welcome move, amendments to the Sugar Industry Act were recently gazetted by Tau after months of negotiations, essentially allowing sugarcane prices to marginally increase, without affecting the cost of sugar to consumers.
While positive, these measures are no substitute for addressing the far deeper structural crisis at the heart of the industry. It is this underlying crisis that must command Tau’s and the rest of the government’s full and urgent attention.
The collapse of Tongaat Hulett directly threatens about 18,000 growers who farm in areas served by the company’s three sugar mills. In effect, two-thirds of SA’s sugar farmers could lose access to milling capacity.
Funded liquidation means money will be made available, to allow operations to continue with mills still able to process farmers’ cane.
Sugarcane cultivation in South Africa is divided into 12 regions, and each region is anchored by a single mill. Growers supply the closest mill year after year, as it is not economically viable to transport heavy cane over long distances, and cane must be crushed within 48 hours of harvesting. Without Tongaat’s three mills, much of KwaZulu-Natal’s sugar farms would lie fallow, leaving the land unused. About 40,000 or more direct and indirect job opportunities would be lost.
On February 27 the business rescue practitioners will appear before the Durban high court asking for Tongaat Hulett’s liquidation, a legal move as they see little prospect of saving the company through business rescue. The application raises two possible outcomes: funded or unfunded liquidation.
Funded liquidation means money will be made available, to allow operations to continue with mills still able to process farmers’ cane. If unfunded, mills will be forced to close and send workers home. Mills without security and other employees could be exposed to looting and vandalism. In an unfunded liquidation the company would also be forced to stop selling existing sugar stocks to retailers and food and beverage manufacturers, in effect meaning growers would lose income from sugarcane already milled. Bank accounts would be frozen, revenues would dry up and operations would grind to a halt.
Much more is at stake than a single corporate failure.
The consequences would not be confined to 18,000 growers but would reverberate across the sugar industry. The Sugar Industry Agreement regulates how millers and growers share income from sugar sales through a levy and redistribution system. The levies that millers, including Tongaat Hulett, pay are shared with the industry. Under the unfunded liquidation scenario levies will not be paid, meaning every grower will earn less for their cane and competing mills may have to pay in more.
A funded liquidation that keeps mills operational and levies paid is essential. This is why SA Canegrowers is imploring the parties, such as the IDC and Vision, to find a way to work with whoever the court appoints as liquidator.
With a myriad other challenges, one question frequently raised is why cane growers do not simply switch to alternative crops. Much of the land on which sugar cane is grown consists of small tracts of hilly land, making it unsuitable agriculturally or economically for alternatives. This is why growers in two provinces rely on sugar for an income and urgently need Tongaat to be saved.
Much more is at stake than a single corporate failure. Those affected include truck drivers, tavern owners, spaza shop operators, barbers and many more in rural communities who rely on the incomes of sugar industry workers, as well as employees on farms, landowners and staff at the mills in two largely rural provinces with few other economic alternatives.
These are not abstract losses; they are human ones.
• Mdluli is chair of SA Canegrowers.
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