Fiji Sugar-Can Bainimarama save it or will he cremate it?

The Fiji sugar industry is on the verge of collapse. Fiji Sugar Corporation, the milling company, is making huge losses. FSC recorded a $19.3million loss in the 2007/08 financial year. The Government has guaranteed an $86m Indian loan to upgrade the mills.

South Pacific Fertilisers Limited owes the Sugar Cane Growers Fund $16.5m and reportedly another $6.5m loaned by the SCGF to SPFL at the directive of then interim Minister for Sugar, MP Chaudhry.

The SPFL will go bankrupt if it does not receive a $21m financial grant from the interim Government as subsidy (F/T 28/02/09). With no resolution to the land lease issues, cane farmers continue to be displaced.

Younger farmers (farmers' children) are leaving the farms voluntarily for urban centres for alternative livelihood.

Skilled employees have been migrating in large numbers for greener pastures abroad since 1987 and continue to do so. The sugar industry is no longer an attractive employment sector.

The EU Sugar Reforms take the full impact in 2009 with 36 per cent cut in the sugar protocol price. With no timeframe for general elections, the EU grant of $350m to reform the industry is certainly not wanted by the IG and surely not coming.

The cost of cane production has further escalated with the cost of transport soaring. In the past two years since the coup of December 5, 2006, nothing constructive has materialised. If anything, the situation has further deteriorated. Cane production has declined from 3.2m tonnes in 2006 season to 2.3m tonnes in the 2008 season.

A drop of almost a million tonnes in two years. Similarly, sugar production has declined from 310,000 tonnes in the 2006 season to 208,000 tonnes in the 2008 season, a decline of 100,000 tonnes.

The milling efficiency has further deteriorated in the two years and registered a TCTS (tonnes cane to tonnes sugar ratio) of 11.2 in 2008 compared to 10.3 in the 2006 season.

In all aspects of the production chain, the industry has faired poorly. I am predicting that the 2009 season could see a crop even lower than 2m tonnes and a projected sugar of 180,000 tonnes.

The livelihood of some 200,000 rural people is at stake. Time has run out.

The interim Government realised far too late but sooner than later that the industry was in the wrong hands and if left any longer was surely doomed. The interim Prime Minister's decision - or the military council's decision - to remove MP Chaudhry from the helm of the sugar industry should not have come any later.

Bainimarama's decision to take over the reins of sugar to drive the reforms is welcomed by many in the industry.

The interim Prime Minister's effort to get rid of institutions that are a burden to the farmers has been welcomed by responsible and sincere farmers' leaders in the industry. A lean, mean and efficient industry structure is what the Fiji sugar industry needs today.

Having spent some 35 years in the industry and with the benefit of working for the miller and the growers, it gives me the opportunity to look at the industry from a broader perspective and make some critical and controversial suggestions on how the industry may be salvaged, an effort that was shortlived due to my premature and unwarranted removal from office as the CEO of SCGC.

Let me, therefore, comment on the restructure of the industry first. The current structure of the sugar industry is confrontational, heavily politicised and too regulated.

Hence, the pre-requisite for any successful restructure and reform of the industry should be to first depoliticise and remove the confrontational structure that is promoting the "us and them" attitude in the Fiji sugar industry. A view I strongly held and promoted as CEO-SCGC and continue to do so.

The big question is, how do you do that? The answer is simple. Privatise the mills. The Government must get out of the industry and hand over the industry to the major stakeholders, namely the growers, mill workers and landowners.

As long as the Government is in the business, the industry will remain the healthy political feeding grounds for unscrupulous politicians to exploit at every opportunity.

In the past 20 years some politicians in the guise of championing the cane growers' plight have exploited the farmers and the industry unashamedly for political influence and power and continue to do so. This is evidenced by the fact that the industry in the past 20 years has lost over $100m due to harvest boycotts and strikes, with most if not all having its real reasons hidden in the cupboards of a certain political leader.

There are a number of ways to restructure and reforms in the sugar industry:

Fiji Sugar corporation:

* FSC is by an Act of Parliament (by Qarase Govt) already a commercial company under the Company's Act.

* The next move should be to turn the four mills into four independent separate business entities with growers, landowners and mill workers of the respective mill areas as shareholders. Here is perhaps the solution for the land lease problem. The landowners receive their land rent and if the milling company makes a profit, the LOUs get dividends as well. An incentive to renew leases. Similarly, the growers and mill workers get dividends if the milling company is making profits. Indeed any loss means no dividend. It, therefore, brings the stakeholders together to work towards the common good of the milling company and removes the confrontational attitude towards each other. It injects a sense of belonging in the company and removes the blame game currently prevalent in the industry.

* The milling company should lease all available cultivatable land or even purchase available land leases to manage large estates for cane productions in every cane sector. FSC already has cane estates in each district and trained personnel and therefore expanding the cane business should not be difficult. The milling company should be expanding and consolidating its own cane production to be viable and not dependent on small holder farmers.

* The FSC should buy standing cane at farm gates and organise and manage the harvesting and the mode of transport most economical and cost effective to make cane farming viable. This removes the growers from the equation as far as harvesting and transport is concerned and removes the controversy surrounding it, thus giving a free hand to the miller to introduce harvesting machines and transport systems that can be more cost effective.

* Cane farmers who are the best scientists of their own farms should be left to focus on producing quality cane and growing alternative crops for maximum financial returns.

* The Government should also seriously consider "regulated share-farming" which can be a win, win situation for both the Indo-Fijian tenants and indigenous Fijian landowners to peacefully co-exist and earn a sustainable livelihood.

Sugar Research Institute of Fiji:

* The Sugar Research Centre is by an Act of Parliament (by Qarase Govt) already established as an independent "Sugar Research Institute of Fiji". The Act provides the authority to the SRIF to periodically "audit" the field and factory performance, introduce "cane quality payment system" and take charge of the "extension services". None of these functions were carried out by the management and the board in the past two years.

The then industry leader's decision to include the extension services to the SRIF under the ACT was due to the high handed and unilateral actions of the FSC to do away with the extension services in the past five or so years with no accountability to anyone. A decision which has been costly to the industry and directly reflects on the cane/sugar production decline.

One must ask, what is the justification for giving back this important role to the FSC and who will guarantee that there will not be a repeat of the same?

Sugar Cane Growers Council:

The SCGC is restructured as a lean and efficient organisation.

The proposed composition of the council reduced to 11 board members is welcomed. However, the council should be structured like any commercial board. The management should be allowed to function professionally with no interference by the board on day-to-day matters. The board's role should be to make policies for the management to carry out and the management (CEO) reports to the board as and when required. To remove political interference from the council, options must be implemented to make the council professional, proactive and more aggressive towards the needs of the farmers. It is also recommended that the council establishes a marketing arm to assist farmers who venture into alternative crops to supplement their income, a plan that remained incomplete due to the military intervention in the affairs of the council.

Option 1:

That SCGC is depoliticised. If Government is ready to finance the administrative costs of the SCGC, then elections can be removed.

The minister is then empowered to appoint members of the board from amongst successful (based on a performance criteria) registered growers.

Applications should be called from registered growers to register their interest to serve on the SCGC board. The minister appoints a three-member board (one - North and two - West) from amongst the registered growers who draw the criteria, shortlist the applicants, interview and select 11 suitable board members for the minister to formally appoint.

1. The 11 member board is comprised as follows: two each from Ba, Nadi, Labasa and one each from Rakiraki, Tavua, Lautoka, Sigatoka and Seaqaqa.

2. Under the criteria the members appointed must be apolitical.

3. The members of the board elect a chairman and a vice-chairman.

4. The CEO continues to be appointed by the board. The board decides the terms and conditions of the CEO which is approved by the minister.

5. The minister decides the fees and sitting allowances for the board members.

At a very small cost of $1m a year towards SCGC administrative costs, the Government can remove direct political interference from within the sugar industry and the SCGC. Since the Government collects about $6m as export tax from sugar sales, a little reinvestment in the industry for peace and stability will not only put the Government on the high moral ground with the farmers but will also sway popular support towards it.

A small change in return for "peace" and "stability" in the industry.

Option Two:

If the Government for some reason should not want to contribute $1m a year, then elections should be held for the 11-member restructured board. Membership annual levy should be equal for all members or farmers since every farmer enjoys one vote. The current system based on "levy per tonne" unfairly penalises good producers who are the major contributors to the SCGC coffers. Some 75 per cent of the farmers produce less than 200 tonnes. More importantly, 27 per cent of farmers produced 55 per cent of the total 2003 production while 45 per cent of growers produced only 15 per cent of the total 2003 output. Any farmer who does not sell any cane to the FSC in the year preceding the year of the elections or has not sold any cane at all should not be eligible to vote or stand for elections.

Option Three:

The SCGC should be abolished and cane growers given the freedom of choice to join whichever voluntary farmers union/association they wish. This removes any direct government interference in the cane growers' affairs and cane growers like other employees in the country can enjoy the freedom of association as provided in the Constitution of the Republic of Fiji.

The Sugar Commission of Fiji:

The Sugar Commission of Fiji should be abolished and the FSC and SCGC should take over most of its duties and responsibilities affecting growers. The Sector Committees and Mill Area Committee comprising representatives from FSC and SCGC (growers) should be established to address all harvesting and transport related problems. Unresolved disputes should be referred to the SIT as provided for in the Master Award.

Sugar Industry Tribunal:

The Sit office should be retained and empowered to take over the overall responsibility of the industry (role of SCOF) and advise the Government as and when necessary. The Tribunal should be full time. Sugar Industry Tribunal should continue to address all industry disputes and be extended to hear disputes relating to growers and any party in the industry. Disputes relating to mill workers in the industry should be referred to the structure under the IR Bill.

Fiji Sugar Marketing Limited:

Fiji Sugar Marketing to be a single-desk commercially restructured company to meet the commercial demands of the industry and more specifically the demands of the four separate milling company's business entities. The FSM should take the responsibility of all post manufacture sugar and value added business ventures. The SCGC and FSC CEOs should comprise the board of FSM.

Sugar Cane Growers Fund:

Sugar Cane Growers Fund to be reviewed and restructured to provide findings to growers for cane development as well as alternative crops and agro-businesses. It should remain an exclusively cane farmers financial institute. Any ministerial powers to override board decisions should be removed from the SCGF Act.

South Pacific Fertilizers Limited:

The SPFL is a company established to supply timely and quality blended fertilisers to the farmers at low cost. The shareholders of the company are SCGC (40 per cent), FSC (40 per cent) and SCGF (20 per cent). The company reportedly is bankrupt because of over exposure and selling fertilisers far below cost in 2008 on ministerial directives. It was reportedly costing the SPFL around $1000 a tonne and the company was selling the fertilisers to the farmers at $390 a tonne.

There is no doubt the interim Government has an obligation to salvage the company (considering that its minister is responsible for the bungling) if the industry is to be saved. Fertiliser is a very important input in realising that cane and sugar is the co-business of the industry. There is no possibility that the farmers can afford the $48 a bag of fertiliser compared to the current price of $19.50 per bag unless the Government subsidises the SPFL. Alternatively, the Government should consider opening the fertiliser business to the private sector with cane farmers free to buy from who ever they wish as long as it meets the quality specifications set by SRIF. The present system of exclusive rights to SPFL with FSC advances should end.

Can Bainimarama do the magic and turn the industry around or will he go down in history as the man who cremated the industry?

* Jagannath Sami, is the deposed SCGC CEO

* The views expressed here are exclusively those of the author and published by this newspaper on that sole understanding.

source: fijitimes