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09 Oct 2019 11:29
Tongaat Hullet's South African sugar operations cover 119 000 hectares of land, mainly in KwaZulu-Natal and Mpumalanga. (Delwyn Verasamy/M&G)
Embattled agri-processing and property giant Tongaat Hulett is preparing to pull out of sugar farming as part of a turnaround plan that has seen the company issue 5 000 employees with retrenchment notices.
Tongaat is still finalising the steps it will take to stabilise itself in the face of massive losses caused by an auditing scandal, but it said last week that it had “identified the opportunity for the company to exit its direct sugar-cane farming activities in South Africa”.
Tongaat has already identified several estates that it will lease to black cane growers to keep land productive until the farms are sold for property development. It is not clear at this stage how long this initiative will be maintained for and at what point the company will sell its farms.
Next week management will meet with the unions operating at Tongaat’s milling operations to discuss the retrenchments, which have thus far affected mainly agricultural workers and staff employed in research and extension services.
Trading in Tongaat’s shares was suspended on the JSE and in London in June over the accounting irregularities, with the company delaying the release of its March results, while its results for several years were subjected to a forensic audit.
On Tuesday, Tongaat’s board extended its cautionary announcement to shareholders, saying it would announce a date for the release of the results only on November 18.
The 127-year-old company’s South African sugar operations cover 119 000 hectares of land, mainly in KwaZulu-Natal and Mpumalanga, with subsidiaries operating in Mozambique and Zimbabwe.
At the time that Tongaat and Hulett were founded, sugar was a critical part of the European colonial project.
The hunger for its sweetness drove large parts of the slave trade in the Caribbean and in other parts of the world.
In South Africa — because the British colonial administration had not yet attacked the Zulu nation — there was no forced labour pool in KwaZulu-Natal.
So, workers were imported from India under a five-year contract. For them to get home, they would have to serve out the contract. Many stayed.
Local activists often point to the fact that some of the workers on the sugar plantations today are their descendants.
Last week, Tongaat announced that it had established a “transformation initiative”, called FarmCo, which would “ensure that land which has been targeted for future property development remains productive under sugarcane”. It said “numerous” farms would “transition” by creating opportunities for third-party growers to farm Tongaat land, reducing job losses at farm level.
As a first step, three estates totalling 3 900 hectares will be leased to Uzinzo Sugar Farming at below market rent to produce about 160 000 tonnes of sugarcane for Tongaat, generating an annual revenue of about R79-million.
Uzinzo is 65% owned by three black sugar farmers, with 15% owned by staff and 20% by Tongaat.
Sydney Ncalane, one of the partners at Uzinzo, said the company had been able to retain about 280 workers at the three estates, located at Shongweni, Dube TradePort and Tongaat. More seasonal workers will be re-employed during the harvesting season.
“Retrenched workers will be given priority,” Ncalane said. “We have employed 282 people currently and are still going to be employing more, about 350 people in three months. Some of the existing staff have taken voluntary severance packages, but we have taken on everybody else.”
Ncalane said Uzinzo had a haulage agreement with Tongaat Hulett which meant the company had a guaranteed market for all the sugarcane it produced. He said that despite the difficult market, the sugar industry in South African could survive with government intervention and the imposition of import controls.
“With government support in the form of regulation we can succeed by running the business better and being able to compete internationally,” Ncalane said.
Nkosikhona Nzama, the sugar sector co-ordinator at the Food and Allied Workers Union (Fawu), said he was “shocked” to hear Tongaat was pulling out of sugar farming.
Nzama said Fawu and other unions were meeting this week ahead of a discussion with management on October 16, at which ways of saving jobs in the milling sector would be discussed.
“So far the retrenchments have impacted mainly on the agricultural side and on support services. We have been invited to a session to discuss the sugar milling operation. We are at the stage where we are looking at means of avoiding retrenchments,” Nzama said.
He said the union was still not clear about how many jobs were under threat, with discussions focusing on voluntary severance packages, early retirement and reducing overtime.
In a statement this week, Tongaat Hulett board chairperson Louis von Zeuner said “substantial time and effort” had gone into the “wide-ranging turnaround plan”, which included broad-based economic empowerment initiatives.
In an article in the Financial Mail this week, its editor, Rob Rose, said that Tongaat had finally received the 7 000 page forensic report into its financial woes on Monday. This, he writes, talks about “accounting high jinks including backdating land sale agreements, overstating the value of its sugar cane roots and plantations, and improperly allocating costs”.
The report was presented to the board last month.
*This article has been updated
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