Canegrowers are running on empty, forced to accept reduced payments for their harvest because sugar companies Tongaat Hulett and Gledhow have defaulted on their industry obligations. It’s an unsustainable situation, which is putting the entire economy of KwaZulu-Natal at risk.

Delays – which some believe are due to wilful dithering – by Tongaat’s business rescue practitioners (BRPs) are heaping pressure on the industry, as a turnaround plan is yet to be put on the table, six months after the BRPs took control of the embattled sugar producers. 

The BRPs are withholding critical payments to the industry – last week, it was revealed that the Tongaat BRPs’ failure to pay R900-million, compounded by a payment default by Gledhow, was costing the already-battling industry R1.5-billion. That means cane growers must take a “hair cut” of almost R430 per ton, just to keep the province’s sugar sector and rural economy alive. 

Canegrowers are expecting an 8% drop in the final recoverable value price (or RV price, which is what they receive for their processed cane) for the 2022/2023 season, because they will have be responsible for paying R1-billion, thanks to the defaulting by Tongaat and Gledhow. 

Sugar industry insider Andrew Ardington, founder of the Regenerative Agriculture Association of SA, is concerned about the effect the delay will have on issuing a rescue plan, saying the impact on the industry is massive. 

“The knock-on effect is massive. Farming districts depend on all these mills and refineries to survive economically. Without them, entire towns will collapse. Everything will collapse if the mill collapses. There’s a much bigger picture here than people sitting around a boardroom somewhere in Johannesburg, discussing how to take the carcass [of Tongaat Hulett] to pieces.”

Farms rely heavily on the mills, he said. “You take away one of those farms and basically you’ll close all those businesses down. Go to any town in South Africa where big, agricultural businesses have been shut down for whatever reason and the entire economy collapses.”

Every sugar cane farm in the country has now been forced to reduce its price by R424 per ton, while the BRPs decide on their next course of action.

Metis Strategic Advisers, the BRPs, declined to comment last week.

More than 20,000 small-scale growers are affected. 

The SA Canegrowers Association lays most of the blame for the loss of revenue on the failure of the BRPs to pay more than R900-million owed to the South African Sugar Association (Sasa) at the end of March 2023. That was compounded by the defaulting of Gledhow sugar mill, after it too went into voluntary business rescue. This, the growers association says, violates the Sugar Act and Sugar Industry Agreement, to which all parties are signatories.

Their failure to pay the levies ate a chunk into growers’ revenue has placed thousands of small-scale and commercial growers on the brink of losing their businesses.

Andrew Russell, chairperson of SA Canegrowers, said the BRPs differed with the industry about their obligations under the Sugar Act and the Companies Act.

The industrial obligations set out in the Sugar Act and agreement are mandatory, applying to all members of the sector, including growers, millers and refiners.

The business rescue process is also taking a lot longer than the industry had hoped for, because of the complexity of the issue, Russell said. Meanwhile, the mills need to continue operating because farmers depend on them to buy their crops and be able to process them. While they may not yet have come up with a plan to find suitable buyers for Tongaat, the BRPs are still required to meet industry obligations, he said. 

The BRPs have a different view: “They believe that the Companies Act gives them relief over certain debts and obligations so they have chosen to suspend those payments. There’s also massive debt, which had been deducted for the year in March, when the growers were expecting to get a top-up payment, which has now evaporated. This has made it very difficult for many growers to get started this season, when the mills opened, to be able to get resources to start delivering cane because they just don’t have the capital.” 

Tongaat Hulett owes about R6.5-billion to nine banks. With a large number of entities having submitted expressions of interest in buying Tongaat Hulett and about a dozen almost ready to bid, the growers need certainty. “We need to know, are we actually going to get paid for the cane that we’ve delivered?”

Failure to meet their industry obligations means that the BRPs at these companies are withholding funds generated from the work of growers that supply the mills, to the detriment of these growers’ operations, workers, and suppliers, says the association.

The growers have now written to Minister of Trade, Industry and Competition Ebrahim Patel to ask the government to intervene. 

They are not ruling out legal action. 

In November last year, Tongaat missed the deadline to pay about R400-million to 4,000 small-scale farmers supplying the Felixton, Amatikulu and Maidstone mills. After crisis talks, the BRPs finally paid the growers.

At the time, the association warned that any further payment issues would trigger a “jobs bloodbath” and lead to widespread socioeconomic fallout.

Tongaat’s messy finances came to the fore last year after a damning PwC forensic investigation revealed the company’s 2018 profits had been overstated by 239% and its assets by 34%. This caused a deepening debt hole dug by executives who are accused of creaming heavily off the top. 

Over a period of 11 years, Deloitte charged Tongaat Hulett R299-million in fees, at a time when time there were major misstatements in the sugar giant’s annual reports, which led to the collapse of its share price.

This week, the JSE found former Tongaat CFO Murray Munro guilty of failing to comply with important provisions of listings requirements, and for making material misstatements to its consolidated financial statements for the periods 2011 to 2018.

The JSE has fined him R6-million and banned him from being a director of a listed company for 10 years. 

The JSE said he was obliged to take the “necessary actions to ensure that Tongaat’s financial information was, in all aspects, correct and that it represents a fair and accurate exposition of the company’s financial information”.

“Tongaat’s previously published financial information failed to comply with IFRS and was incorrect, false, and misleading in material respects. Mr Munro’s actions directly resulted and/or contributed to Tongaat breaching the listings requirements. As Tongaat’s CFO at the time, he was responsible for this, and in terms of the listings requirements cannot delegate this responsibility.”

Munro is challenging the JSE’s decision.

Tongaat was forced to enter voluntary business rescue on 27 October 2022, four months after its unsuccessful capital-raising deal with Magister Investments. 

Still, Russell remains hopeful that the feared “jobs bloodbath” will not happen. While the BRPs’ failure to pay levies has put them in a very tight financial situation, the association has not seen significant job losses – primarily because growers have switched up their operations. “I think that if we can get over this immediate financial hole that we have in the next two months, the prospects for this current season are very good. The sugar price actually looks very good. We’ve managed to restore a lot of sales being eroded by the Health Promotion Levy. The prospects are good but we have to get over this immediate crisis.” 

There are positive signs – in a meeting last week the BRPs acknowledged there were outstanding debts. “They’ve also written to say it is their intention to honour their industry obligations going forward from April.” DM168

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.