Mahendra Chaudhry: State should pay cash grant because of drought and FSC should pay compensation for mill inefficiencies in 2009 and 2010
Posted Fiji Labour Party November 1
The National Farmers Union is seeking compensation for the massive losses suffered by the cane farmers as a result of FSC's failure to crush cane efficiently at its four mills.
In a letter to Growers Council chief executive officer, Sundresh Chetty, the NFU has also called for relief to be granted through a cash grant for growers affected by the severe drought as well as a crop rehabilitation programme.
In building a case for compensation, NFU general secretary Mahendra Chaudhry said, "The cane growers have now reached a point where they cannot be expected to increase production unless compensated for the massive losses sustained by them because of the negligence and inefficiency of the FSC".
The full NFU letter to the Council is published below:
26 October 2010
Mr Sundresh Chetty
Chief Executive Officer
Sugar Cane Growers Council
2nd Floor Sugar Cane Growers Building
75 Drasa Ave
Dear Mr Chetty
re: Drought Relief and Crop Rehabilitation Assistance to Cane Growers
I wish to express our concern at the gravity of problems facing the sugar industry generally and the cane farmers in particular.
As the largest cane growers organization in the country, we have been inundated with questions about the industry. Most of our members believe their future will be bleak should they continue to rely on cane farming for their livelihood. Indeed, they have very good reasons for saying so, as can be measured by the sharp decline of the industry since 2006. The following statistics obtained from the annual reports of the FSC should provide ample evidence of the seriousness of the situation:
Season Cane Crushed Sugar Make TCTS
tonnes (m) tonnes (000)
2006 3.23 310 10
2007 2.48 237 10
2008 2.32 208 11
2009 2.25 168 13.4
2010(est) 1.80 130 13.5
During the same period, revenue from sugar has continued to decline for three reasons:
• Firstly, lower exports because of reduced crop size and consequently lower sugar make.
• Secondly, reduction of 36% in the export price paid by the EU.
• Thirdly, and connected to the first reason, the high TCTS ratio resulting in wastage of cane in the inefficient milling process.
Season Revenue Cane Price EU Price
($m) per tonne ($) Reduction
2006 232 58.60 5%
2007 272 59.65 7%
2008 206 59.70 21%
2009 *204 *56.59 36%
*would have been 20% less if not for devaluation
The forecast for the 2011 season remains depressed because of the impact of the prolonged drought and the chronic malfunctioning of the mills.
NFU officials have been engaged in the past several weeks in carrying out a survey of the areas impacted by the drought in the Western division. Our survey has convinced us that there is an urgent need to provide assistance to the affected cane growers not only for relief from the effects of the drought but also to provide support for a cane rehabilitation programme.
We believe that farmers should be assisted by way of a cash grant to compensate them for the loss suffered as a result of the reduced crop size. Our assessment points to a crop reduction of around 400,000 tonnes (from 2009) which equates to a net income loss of around $8 million for the farmers.
This is further aggravated by the huge wastage of cane in the milling process because of the high TCTS ratio of around 13.5. The acceptable ratio should be around 8.5, but given that FSC had stated 10.5 at the beginning of the season, we propose to strike an average between the two at 9.5. On that basis, the farmer suffers a loss of 4 tonnes of cane for every tonne of sugar manufactured.
It follows, therefore, that 190,000 tonnes of sugar should be made from a (reduced) crop size of around 1.8 million tonnes. However, with TCTS at 13.5 the current estimate is that the sugar make is unlikely to exceed 130,000 tonnes, but it may even be less given the prevailing adverse conditions in the industry.
The shortfall of some 60,000 tonnes is massive and approximates a loss to industry income of around $50 million at the current export price of which $35 million will have to be borne by the farmers.
You are aware that in the 2009 season farmers incurred a loss of $70 million because of the negligence of the FSC. In the past two seasons (2009/10) the TCTS has been extraordinarily high at 13.5 which is the main contributing factor for the losses.
The cane growers have now reached a point where they cannot be expected to increase production unless compensated for the massive losses sustained by them because of the negligence and inefficiency of the FSC.
If the sugar cane crop size is to be restored to around 4 million tonnes, then it is imperative that the farmers must be paid a cane price that will give them a reasonable return on their investment. For the 2009/2010 seasons they will not receive even the declared forecast price of $61 and $45 per tonne, respectively.
In light of the forgoing we propose that the Sugar Cane Growers Council seek a specific assistance package which should comprise the following:
1. Cash grant for loss of production as a consequence of the prolonged drought (State to pay)
2. Compensation for the losses suffered in the 2009 and 2010 seasons because of gross inefficiencies in the milling process (FSC to pay)
3. A crop rehabilitation programme similar to the one instituted in 1998/1999 following the drought of 1998 (State to pay)
A formula for the payment of cash grant was devised in 1998 and this could be relooked at by the Council. It is suggested that the formula be appropriately revised to take account of the prevailing conditions and then applied across the board.
Compensation of Losses
The Council will need to take advice on this but we would suggest that the cane growers be compensated on the basis of the wastage of cane in the inefficient milling process.
This works out at 42% ie; 13.5 – 9.5 = 4 which is 42% of 9.5.
Cane farmers should, therefore, be paid an additional 42% of their gross proceeds for each of the years.
Crop Rehabilitation Assistance
Here again, the formula used in 1998/1999 could be relooked at and applied with adjustments where justified.
The above constitute our submission on the subject of assistance to cane farmers for drought relief, compensations for losses sustained in the 2009/2010 seasons, and a crop rehabilitation programme.
We trust the Council will do the needful to assist the cane growers at this most critical juncture in the history of the industry.
Mahendra P Chaudhry