Cut up: Many sugar farmers in KwaZulu-Natal are in trouble after the mill at Tongaat Hulett, which is in business rescue, failed to pay them for their produce. (Delwyn Veasamy/M&G)
KwaZulu-Natal’s small-scale sugarcane farmers have welcomed news that Tongaat Hulett is potentially selling all its sugar assets to Tanzanian sugar producer Kagera Sugar, saying the transaction will bring more “stability” to the industry.
This comes after business rescue practitioners announced last week that they have found a preferred bidder for the entire sugar division of Tongaat Hulett Limited in South Africa and its investments in Zimbabwe, Mozambique and Botswana. The sugar producer cut down a list of 70 interested bidders to just eight and then settled on Kagera Sugar.
“We have seen that the acquiring company is also in the sugar industry and that gives us hope. It’s not as if Tongaat is being bought by a pharmaceutical company that has no idea about the dynamics in the sugar industry. We don’t really mind that they are a foreign company,” said Nkosinathi Msweli, a small-scale sugarcane farmer.
Kagera Sugar has more than 30 years of experience in sugar and agriculture and is the third largest sugar producer in Tanzania.
Msweli said the small-scale sugarcane growers were not worried about the potential restructuring by the new owner because Tongaat Hulett mills were running at low capacity.
“Tongaat did try to restructure the company before they entered business rescue and they closed some of the mills. They said there was a lot of capacity at the mills and they cut down on the sugar being milled,” he said.
“Even with the mills that remain, they aren’t at full capacity. So, the chances are slim that they [Kagera Sugar] would decrease the number of farmers.”
In June 2022, Tongaat Hulett announced the establishment of a restructuring committee led by Piers Marsden, whose plan was to turn Tongaat around from near collapse under high debt levels, financial misstatements and historic mismanagement which resulted in the loss of significant value to its shareholders.
By October 2022, Tongaat entered into voluntary business rescue because of its debt of R6.3 billion and its struggle to pay its creditors on time.
Sugar industry lobby group SA Canegrowers said Tongaat Hulett defaulted on paying more than R900 million due to the South African Sugar Association by the end of March 2023, the end of the financial year. This default cost the industry R1.5 billion.
“At the start of the new financial year [in April] we met the business rescue practitioners and they assured us that going forward they will honour all of their debts and since then they have honoured their debts and on time,” Msweli said.
Because of the delayed payments and uncertainty in terms of the continuation of Tongaat Hulett operations, Msweli previously told the Mail & Guardian that he had to let go of workers at his sugarcane farm. He has now brought them back on a full-time basis.
“All seven of my workers started at the beginning of May [and] for now things are looking okay and we hope going forward that they will be better. I have hope,” Msweli said.
Another small-scale farmer, Babbo Lekha, who was worried that Tongaat “might just close it [the mill] down”, said he is still worried because the deal has not officially gone through and until the new buyers “come in and settle” the farmers remain uncertain. “But if they [Kagera Sugar] are here to stay then it’s fine”.
Lekha is not worried about the takeover from a company from Tanzania.
“There are a lot of companies in South Africa that are foreign, it’s not a new thing,” he said. “As long as the new management comes in to create jobs and the money they inject in here is used for the right things then it’s fine. We look forward to it.”
He also said the business rescue practitioners had kept their word and paid sugarcane farmers on time since the start of the new financial year.
“There have been no problems on the side of Tongaat Hulett and business rescue practitioners. Things were rocky at first but now they are stable. We look forward to the new guys coming in,” he said.
SA Canegrowers said it welcomes the announcement of a strategic equity partner in the Tongaat Hulett business rescue process.
“This is an important step forward, but much remains to be determined. We will continue to monitor the situation closely as it develops. The most important outcome will be the survival of growers’ operations and the protection of the livelihoods they sustain,” said chief executive Thomas Funke.