$100m loss to the sugar industry in 2009

[posted 29 Jan 2010,1630]

The sugar industry faces a massive $100 million loss for the 2009 season all because of FSC’s failure to efficiently convert cane to sugar at its ailing mills.

Of this, loss to cane farmers will be a staggering $70 million as they are entitled to 70% of industry revenue.

This means a loss of $30 per tonne per grower because FSC has failed to meet its contractual obligations under the Sugar Master Award through failure to keep its mills running at optimum efficiency.

For the 2009 season, FSC received 2.3 million tonnes of cane at the four mills. This was converted to barely 165,000 tonnes of sugar at an average TCTS of 14:1 – meaning it took FSC 14 tonnes of cane to produce one tonne of sugar – this is the height of inefficiency.

The mills are normally expected to crush at a TCTS of 8.5:1 – but this has not been achieved for some years now as a result of gross ineptitude and inefficiency on FSC’s part.

At the acceptable TCTS of 8.5, FSC should have produced 260,000 tonnes of sugar from 2.3 million tonnes of cane – a gross shortfall of 100,000 tonnes for the season.

Is it any surprise that the Corporation is today bankrupt and has been so for the past 10 years? It posted a net loss of $11.43 million for the six month period ending November 2009 with accumulated losses of $68 million over the past three years.

Incidentally, we note that the South Pacific Stock Exchange is now highlighting FSC’s financial (non) performance after a complaint was lodged with it by the National Farmers Union as a minority shareholder. As a result, FSC is now required to post six-monthly financials which were not available before.

FSC’s current financial plight is nothing new. Its history of gross under performance over the decade is just shocking, considering it is the country’s biggest commercial entity, heading its second largest industry.

Since 2001 when it posted a record $21 million loss, FSC has largely been kept afloat through special government loans and grants. By 2003-end it had run into accumulated losses of $70million.

In 2002, the Qarase Government agreed to write off a $34 million loan to FSC and further facilitated $75m in loan funds from the ANZ Bank to keep the Corporation afloat - then in 2005, this was converted into a government grant.

Five years later having had $109 million written off, FSC is facing the same situation again – accumulated losses of close to $70million. Indeed, in August 2003, Labour Leader Mahendra Chaudhry, speaking in Parliament on the critical plight of FSC, highlighted problems that read like a report on FSC’s performance in the 2009 season – nothing has changed!

At the time, he described FSC as the “sickman of the industry”. FSC, of course, finds scapegoats for its losses – this year it is blaming the devaluation, the floods, the drought and the mill upgrade programme. As far as mill upgrading goes, in 2008 the Lautoka Mill underwent major upgrading works but its performance that year was the best on record. In fact, the mill operated so well, it ran out of cane to crush.

The current regime has seen it fit to dismantle the Sugar Commission of Fiji, the Sugar Cane Growers Council and the Fiji Sugar Marketing Ltd – institutions designed under the 1984 Sugar Industry Act to ensure accountability and transparency in the industry and to give cane growers their rightful say in an industry in which they had a 70% stake.

But, FSC, the one industry institution that urgently needed restructuring and reform, was left intact to continue its shocking corporate record of financial losses and inept leadership!

The end result: a failed and bankrupt Fiji Sugar Corporation, and one that is heavily subsidised by the cane growers and the taxpayers of Fiji, now rules the roost in the industry in collusion with the Sugar Ministry. FSC can no longer be questioned or held accountable for its losses or failure to meet its obligations under the Sugar Master Award.

The outcome is there for all to see:

• a $100 million loss in just one season

• Fiji’s failure to meet its export commitments to UK buyers, Tate & Lyle

• Fiji’s failure to take advantage of a record world market price for sugar  this season

And a once-powerful industry, now thoroughly demoralised and looking askance at its future!