tawandamusarurwa
Martin Kadzere
SUGARCANE farmers in the Lowveld are appealing for “better” repayment terms for advances they receive as working capital from millers, arguing the current funding structure is threatening their viability, The Sunday Mail Business can report.
Tongaat Hulett, which owns Zimbabwe’s major sugar milling assets, runs a scheme under which farmers get advances as working capital and are required to repay in 30 days.
Failure to repay, the farmers, who produce about 46 percent of sugarcane, are charged 16 percent interest in Zimbabwe dollars or 12 percent in US dollars, which is compounded if they fail to pay within 30 days. According to the Association of Sugarcane Farmers (ASF), this leads to unsustainable growth of debts.
The sugar industry is one of the largest formal employers in Zimbabwe, with a total labour force of between 25 000 and 27 000 employees mainly in the country’s Lowveld region.
“While there is a narrative that we are being given the inputs, it is not correct because they are selling the inputs to farmers on a credit facility of 30 days. After 30 days, they start charging interest and that interest is compounded until farmers pay up.
“Sometimes the prices are inflated. Previously, farmers would get the inputs and repay after harvesting. Of course, they are talking about an unstable economy but the Government is very clear that until 2025, we will have a multi-currency system. So, we don’t see any reason why they should not follow that,” the association said.
The association noted the short-term advances were not favourable given the production cycle of sugarcane. It takes at least 12 months for cane to mature and be harvested.
Tongaat owns 51 percent of Hippo Valley Estates and 100 percent of Triangle Limited.
The two companies are both major sugarcane growers and millers. The total area developed for sugarcane production in the industry stands at about 46 000 hectares. Triangle and Hippo collectively own 54 percent of the land while the local farmers work on the reminder.
Tongaat corporate and industry affairs executive Dr Darhlia Garwe said the company was running a voluntary co-management scheme to assist farmers with technical services and funds to buy inputs.
Under the scheme, the millers also provide extension services to willing farmers. The scheme is a land productivity and sustainability enhancement in which millers are responsible for the management of sugarcane and training of farmers for an agreed period after which the grower takes full control of the crop.
To date, the co-management scheme, which includes the Cane Purchase Agreement (CPA) and Cane Management Agreement (CMA), stands at about 1 400ha of the planted crop.
Under the CPA, farmers deliver the cane to the miller and are paid an agreed percentage of the estimated value of the cane, with the balance being paid once the full value has been determined.
The CMA, which most of the farmers participate in, entails a farmer delivering cane to the miller but maintaining ownership of the sugar until it is sold. Currently, the miller retains 23 percent of the net proceeds of the sugar, with the remainder of 77 percent being remitted to the farmer.
“It is the CMA which presents problems for the farmers, impacting as it does on their cash flow as, naturally, they cannot be paid till their proportion of the sugar is sold and cash received — that is to say farmers are paid on a cash received basis,” Dr Garwe said.
“Sugar sales and payments are made progressively throughout the year, (and) if the farmer does not have adequate resources to see them through to the next payment, they will find themselves in difficult situations. However, to bridge the gap, the miller is currently assisting willing farmers by providing an advance payment against future sales of sugar belonging to them.
“The millers ordinarily negotiate borrowing facilities with banks in order to make advance payments to farmers, with such advance payments being recovered with interest. This allows the farmer to purchase inputs such as fertiliser, agrochemicals and fuel (inputs) required for their operations as they harvest,” Dr Garwe added.
The millers, Dr Garwe said, do not give loans to farmers but provide advance payments calculated on the estimated value of the sugar still to be sold and any that may already have been sold at the time of the advance. She said the advance provides cushioning for the farmer and is backed by the sugarcane delivered.
“The farmer is not obliged to take an advance from the miller and neither is it obligatory for the miller to provide an advance,” Dr Garwe said.
“It is the banks that should provide working capital to farmers and, indeed, many of them do borrow from the banks.
“However, the miller is able to provide the advance on less onerous terms than the banks.
“In such cases, the ultimate cost of obtaining such finances on behalf of the farmers is passed on to the beneficiaries at arm’s length. The millers are supportive of the farmers and established an out-growers’ extension department to interface with all private farmers in their respective mill groups (Hippo, Triangle and Mkwasine) to impart sugarcane production principles and practices to enhance productivity.”
Prior to the land reform, which started at the turn of the millennium, Tongaat, which owns mills in Triangle and Hippo, owned 75 percent of all the land under sugarcane.
Changes in land ownership saw a major transition as plantations under Tongaat declined to 54 percent while out-growers took control of the remaining 46 percent.
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