Towards the slow but sure demise of the small/medium sugarcane planter sector
Early this year a private bank launched a credit card targeting sugarcane planters, with the aim of alleviating the cash flow problems of the latter. The bank, being a private entity, has to create value for its shareholders and it is therefore normal that it charges interest, and, as a result will be excluded from what follows.
However during the launching ceremony, the Minister of Agro-Industry said that he had carefully studied the proposal of the bank, found the product to be in the interest of planters, congratulated the bank for this innovative product and encouraged the planters present to take advantage of the credit card facility as it would ease their cash flow problems.
It is beyond our understanding how small planters can be encouraged to borrow money and pay interest, when:
1. Our money is available but we work on credit terms. Concretely, in practice a planter will receive 40% cash advance for the 2010 harvest. That advance will disappear faster than it arrives given the increasingly high cost of cutting/loading/transport of sugarcane to the mill. The balance will be paid in instalments that will end before the start of the 2011 harvest. So is it any wonder that cash flow becomes a problem?
2. Our money is, to put it very politely, inefficiently used. Even before planters can get a sniff of their money, CESS contribution is deducted to finance institutions, the modus operandi of some of which and their very ‘raison d’être’ in 2010 are questionable. For e.g.
(a) Although it had a socio-economic relevance in the distant past, planters should no longer be compelled to insure their sugarcane at the SIFB. No person can be forced to take a Life Insurance Policy, so the willingness to insure one’s sugarcane should be equally optional. We have often heard how this country should become one of entrepreneurs and risk-takers. So let planters who are willing to be risk takers, be released of the legal requirement to contribute to the SIFB. (b) It appears that Rs 75.0 Million of CESS money is used to finance the pensions of ex-dockers. Whose idea was it to make small and medium planters (entre autres) foot this bill? How many other such ‘bills’ are small/medium planters unknowingly paying?
On the same subject, the report prepared by KPMG on restructuring the CESS-funded institutions should immediately be made available to planters so that we may have our say in how OUR money is ‘spent’.
3. Planters are strongly encouraged to join and financially contribute (for between 5-7 consecutive years) to Field Operations and Regrouping Projects (FORP) which deliver yield reduction, operational cost increase and loss of consecutive harvests, and, are told to enter legal action against the authorities if they are not satisfied as the authorities do not have time to read the complaint letters sent by planters. At least planters can rely on the EU Ambassador and Head of Delegation to listen to the problems, visit the fields and engage in a scope of work and time frame discussion with a view to finding appropriate solutions. Le monde à l’envers.
Certain FORPs have even caused severe long-term financial and managerial prejudice to planters.
After carefully reading the reply to Parliamentary Question No. B/33 of 23 March 2010, it is clear that planters are being taken for a good ride. Success of FORPs cannot and should not be measured by acreage replanted. Instead, sustainable yield increase and operational cost reduction over a full sugarcane cycle and beyond should be the key performance indicators. We clearly remember the entreaties to ensure that the EU released what were called Accompanying Measures funds. At least that money should be put to good use.
4. Centralisation of the sugar industry has added inefficiencies during harvest and thereby increased cost of production. Although centralisation was inevitable, the impact on sugarcane planters has been disregarded. In the South, planters suffered financially due to the repeated breakdowns of the factory and Centrale Thermique at Savannah when these came into operation. Is the Ministry of Agro-Industry aware of that fact and has anyone attempted to quantify the losses imposed on planters with a view to compensating them?
Centralisation has also aggravated the quota system which determines the amount of cane a planter can send to the mill daily. This imposed quota means that a planter who mobilises resources such as cane harvester, bell loader and lorry for his harvest may be allowed to send only 15 to 20 tonnes of cane daily. The impact on cost per tonne of sugarcane harvested, loaded and carted away can be disastrous.
5. The socio-economic environment in which the small planters operate puts them at the mercy of suppliers and contractors. As far as inputs are concerned, the small planter has absolutely no bargaining power. These planters rely on lorry owners in their respective regions to organize their harvest schedules. It is not uncommon for cut cane to be left in the fields for days waiting for a basket to be delivered, thereby decreasing the sugar content – all this because the lorry owners dictate the costs as well as time of cutting to suit their convenience. We need not mention how transportation costs go up disproportionately with diesel price increases based on the Automatic Pricing Mechanism; they never come down when the price of diesel falls.
6. Revenue has decreased by 36%. This item has deliberately been addressed last as the strength of the Euro vis-à-vis the Rupee has meant that the brunt of the 36% decrease has not been fully felt. However for the 2009 harvest the effective price planters are paid will decrease and most probably will continue to do so in the future. So is it any wonder that cash flow becomes a problem?
Other than the budgetary and other ‘effets d’annonce’ we are now accustomed to, a total disregard has been shown towards small/medium sugarcane planters (scores of small planters have moved away from sugar cane cultivation, resulting in some 15,000 arpents of land left abandoned during the past decade) unlike the sectors mentioned below:
The pig breeders/small dairy farmers/fishermen voice their concerns and problems; the Ministry of Agro-Industry finds time and money for them. Which fund(s) do they contribute to?
Fruit growers voice their concern and problems over damages done by bats; the Ministry of Agro-Industry finds time and money for them (75% of the cost of nets will be refunded by government). Which fund(s) do they contribute to?
Sugarcane planters have been voicing their concerns and problems; the Ministry of Agro-Industry asks planters to borrow money from a commercial bank and pay 12% as interest. Which fund(s) do WE contribute to? CESS! How inefficiently has/is that CESS money being spent/wasted over the past decades? Why is the KPMG report lying somewhere in a drawer? Was that report paid for by CESS money? When will it be made available to planters so that a meaningful debate can take place and the appropriate solutions found?
The Ministry of Agro-Industry should review its priorities as clear and urgent policy decisions as well as amendments to current legislations are long overdue, to ensure that small/medium sugarcane planters benefit from their money, instead of same being used to unnecessarily fund salaries, pensions, benefits, inefficiencies and the upkeep of buildings which in no way contribute to value creation.
The blunt questions that arise are: does the Ministry of Agro-Industry have a clue as to the realities faced by the planters and, more importantly, does it care? Based on the plight of planters left to themselves over the past few years, it seems NOT.