Farmers face a bleak future

Listen to this article:

Cane-cutters load harvested sugarcane on to a truck. Picture: https://www.policyforum.net/fijis-

The story of the sugar industry in Fiji is a rich one.

The girimatias were brought to Fiji because of sugar cane which forever changed the destiny of this land.

However, the story does not appear to be headed for a happy ending.

The sugar industry has been on the slippery slope for many decades.

The problems are well understood.

The solutions are also clear.

But sadly, government after government has allowed politics to accelerate what can be a devastating end to this historical story.

I compare the sugar industry with a boxing match.

At the blue corner is the miller (FSC).

At the red corner are the cane farmers.

In the middle is the referee, who is Government.

The battle is being fought in an arena leased from landowners.

The rule of the game is the master award which dictates that the miller gets 35 per cent of the proceeds of the sale of sugar and growers, 65 per cent.

In last Saturday’s The Fiji Times, two articles caught my attention and motivated me to write this opinion.

The first announced the change in the CEO of the FSC, and the second, authored by the former Prime Minister Mahendra Chaudhary, lamented the end of the “Heyday of the Fiji Sugar Industry”.

Misleading financial performance

In the first article, Graham Clark, the outgoing CEO of FSC, said four years ago he took over a dysfunctional operation, and during his tenure, cleaned up the balance sheet, improved mill operation and reduced mill breakdowns by 20 per cent.

Further, he said, there were only a couple of what he called legacy issues left to be put to bed.

Apart from that, he had cleaned out the cupboards and set the platform for the incoming CEO to take FSC to a fully functional and profitable organisation.

The above statements prompted me to have a closer look at FSC’s operation for year ending May 31, 2020.

The first thing that caught my eyes was that FSC made an operating profit of $22 million against an operating loss of $80m for year ending May 31st, 2019.

Despite the declining trend in cane production, how did Mr Clark achieve a quick turnaround of more than $100m in only one year?

It is too good to be true.

And you know what?

It is.

The profit claimed by FSC in 2020 is an artificial one.

It was not a result of better operations at all.

It was not a result of milling efficiency.

It was simply because the taxpayers’ through Government gave FSC a grant of $50m in 2020.

If you remove the grant, FSC would have made another year of loss.

From the financial statements of FSC for 2019 and 2020, the following conclusions can be made:

  • FSC will depend on Government grants for its existence into the foreseeable future.
  • Except for a few years of profit, FSC, since 2011, has been making trading losses. It means that FSC cannot make money from crushing cane and selling sugar. Its cost of producing sugar is higher than the revenue from selling sugar.
  • In the last two financial years, FSC made a trading loss of $43m and $73m respectively.
  • The total net loss for two years without taking into account extraordinary incomes was $158m.

The conclusion is clear.

The FSC is insolvent.

It cannot survive on its own.

The taxpayers will continue to bail FSC out.

If FSC was privately owned, it would have closed 10 years ago.

FSC is existing as a very expensive welfare scheme.

Increase cane supply Government must immediately take command to reverse the operating loss of FSC.

How does it do this?

I believe the answer is twofold.

The first is to increase the supply of cane and the second is to make FSC more efficient.

The latter will contribute to achieving the former.

The solution to increasing cane production is to make farming of cane a profitable business.

Right now, cane farming is back breaking work but very little rewards.

Younger generations are leaving cane farming.

Landowners refuse to farm.

Since it is difficult to reduce the cost of farming of which harvest and transport are the major components, the only solution to raise cane production is to increase the price of cane.

But how can FSC do this when it is already treading water?

Make FSC efficient 

We can raise the price of cane to farmers if we implement the second solution and that is to make FSC more efficient.

FSC must improve the tonnes of cane that produce a tonne of sugar.

The tonne of cane to sugar ratio has deteriorated from 8.1 tonnes in 2014 to 10.7 tonnes in 2019.

This simply means that FSC is crushing 32 per cent more cane to make the same amount of sugar that it made in 2015.

If we assume a 24 hours, seven days and 22 weeks crushing season, a total of 3696 hours is available.

However, our combined sugar mills are crushing at only around 65 per cent of the available time.

Even allowing time for mill maintenance and the occasional breakdowns, an efficient operator can increase the crushing time to around 85 per
cent or more.

This means that the cost of producing sugar by FSC is 20 per cent higher than other sugar producing countries.

The new CEO must be given a target to lift the operating time of mills to at least 80 per cent.

Reduce operating cost

Mr Chaudry praised the late Rasheed Ali, a local, for his many achievements as the CEO of the FSC.

I fully agree.

I know the attributes of Mr Ali as he was a board member of the Reserve Bank for a long-time.

The success of a local like Mr Ali was because of his local knowledge and his ability to manage relationship in the industry.

Expatriates do not usually possess these strengths.

I am sure that Mr Ali’s remuneration was much lower than what Mr Clark is getting.

The policy of this Government of disregarding local talents in favour of expatriates with their fat salaries adds to the operational cost of the organisation.

It is unclear to me if the organisation gets any additional value from these exorbitant salaries.

Legacy issues

I wish the new CEO well. Mr Clark said that only a couple of “legacy” issues remain to be put to bed.

This is the understatement of the New Year.

These legacy issues are complex and diffi cult to resolve.

In my view, there is no platform for the new CEO to launch FSC into a higher orbit.

Instead, he will continue to face fundamental challenges in his tenure many of which are not in his control to solve.

The referee must step in, take the bull by the horn and bring in much needed innovations and reforms.

Politics must go 

Finally, we all know that politics have been an integral part of the sugar industry.

When I looked back to the past 60 years, I noted that the Fiji Kissan Sangh, Maha Sangh, Chini Majhdur Sangh (currently the Fiji Sugar Workers Union), National Federation Party, Indian Alliance Party, and the National Farmers Union originated and gained popularity from the sugar belt in Fiji.

Most of our past and current political leaders have used our sugar industry as a platform to launch their political careers.

The PM made a recent statement that politics should be thrown out of the sugar industry.

I agree.

But his Government has chosen to do this by riding roughshod over the structure of the sugar industry which had taken many years to build.

They have not assisted farmers by raising the cane price.

This is not the way to remove politics from sugar.

All this Government has done is to make rhetoric statements.

None of our political leaders, past and present, has had the courage and the foresight to take the bold steps to reform the industry.

Instead, they had chosen to take their seat on the sugar gravy train.

The demise of the sugar industry with its rich history will happen sooner rather than later if politicians lack the courage to reform the industry.

The destruction of the livelihoods of thousands of families will be extremely hurtful.

We must act now to turn the sugar industry around.

It will take innovation.

Above all, it will take courage and transformational leadership.

This would not be an easy task.

But it must be done for the sake of the thousands of families who depend on the industry.

  • SAVENACA NARUBE is the Unity Fiji party leader and former Governor of the Reserve Bank of Fiji and. The views expressed are his own and do not necessarily reflect the views of this newspaper.
Array
(
    [post_type] => post
    [post_status] => publish
    [orderby] => date
    [order] => DESC
    [update_post_term_cache] => 
    [update_post_meta_cache] => 
    [cache_results] => 
    [category__in] => 1
    [posts_per_page] => 4
    [offset] => 0
    [no_found_rows] => 1
    [date_query] => Array
        (
            [0] => Array
                (
                    [after] => Array
                        (
                            [year] => 2023
                            [month] => 12
                            [day] => 28
                        )

                    [inclusive] => 1
                )

        )

)

No Posts found for specific category