Embattled agri-processing and property giant Tongaat Hulett is preparing to pull out of sugar farming, as part of a turn-around plan which has seen the company issue 5 000 employees with retrenchment notices.
While Tongaat is still finalising the steps it will take to stabilise itself in the face of massive losses caused by an auditing scandal, it said last week that it had “identified the opportunity for the company to exit its direct sugarcane farming activities in South Africa”.
Tongaat has already identified several estates which it will lease to black canegrowers to keep land under cane until the farms are sold for property development purposes. It is not clear at this stage for how long this will be maintained 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 only announce a date for the release of the results on November 18.
The 139 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.
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 totaling 3 900 hectares will be leased to Uzinzo Sugar Farming at below market rent to produce around 160 000 tons of sugarcane for Tongaat and generating revenue of around R79-million annually.
Uzinzo is 65% owned by three black sugar farmers, with 15% owned by staff and 20% by Tongaat.
Sydney Ncalane, one of the partners in Uzinzo, said they had been able to retain around 280 workers at the three estates, located at Shongweni, Dube Trade Port and Tongaat, with further seasonal workers would be re-employed in 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; around 350 people in three months. Some of the existing staff have taken voluntary severance packages, but we have taken on everybody else.”
Ncalane said they had a haulage agreement with Tongaat Hulett which meant that they had a guaranteed market for all the sugarcane they produced. He said that despite the difficult market, the sugar industry in South African could survive with government intervention and the imposition on 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 Food and Allied Workers Union’s (Fawu) sugar sector coordinator, said he was “shocked” to hear that the company 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 they were still not clear how many jobs were under threat, with discussions focusing on voluntary severance packages; early retirement and reducing overtime hours.
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.
The company was “progressing well” in restructuring its debt, while the forensic review by PricewaterhouseCoopers had been concluded. An overview would be made available to shareholders at a later date, but the results of the audit would not be made public.