The Melville Sugar Mill in South Africa’s KwaZulu-Natal province is a sign of what used to be and what the future might hold.
Trees have grown through the two brick chimneys of the mill, which closed in 1978. The sugar-cane trucks now wend their way past it on a gravel road as schoolchildren snatch up the falling stalks to suck out the sweet juice. Consolidation and struggling businesses have seen a wave of mills close.
“When I see this place it always breaks my heart,” said 56-year-old Kiki Mzoneli, a fifth-generation sugar farmer who’s watched as sugar prices fall and kept planting for fear of ceding unproductive fields back to the Zulu royal household, which owns much of the land in the southeastern province. “We plant even when we make a loss. If we don’t plant on the land, we lose it.”
Mzoneli is one of more than a million South Africans dependent on sugar. It’s a more than century-old industry that’s now struggling to compete with imports from global giants like Brazil, low labour costs in neighbouring Eswatini and to cope with her country’s bungled industrial policy that’s failed to create local demand after two decades of indecision.
Tongaat owes sugar association R517m in outstanding industry levies
Those pressures are now coming to a head. Tongaat Hulett, which accounts for more than 40% of South Africa’s refined sugar production and was founded 134 years ago, narrowly avoided liquidation after winning a state-led lifeline in June that will keep it funded until the end of this month. Its rival, Associated British Foods Plc-owned Illovo Sugar, is struggling to turn a profit at its South African operations.
The sugar industry is of limited economic importance to the country, generating about R24 billion ($1.5 billion) annually, but it sustains more than a million people and provides 270 000 direct and indirect jobs in a country where one in three is unemployed.
While welcoming the intervention, the cane growers that supply Tongaat’s mills see the measure as a band-aid that doesn’t address the challenges faced by the industry.
“What’s the point in spending so much money to keep mills open while failing to resolve the matter of cheap imports?” Mzoneli says of the state-owned Industrial Development Corp extending R2.5 billion of loans to Tongaat that will be converted into equity, enough to keep the company running until the end of September.
At about the same time, Vision Group bought R11.7 billion of the struggling company’s debt with a view to negotiating control at a later date.
“It averted liquidation — it preserved approximately 250 000 livelihoods across the sugar value chain,” said Rute Moyo, a Zimbabwean businessmen who controls Vision together with South Africa’s Robert Gumede. “Protecting Tongaat Hulett is not just a commercial interest, it’s a national responsibility.”
Both Illovo and Tongaat, the plight of which was worsened by an earlier accounting scandal where senior executives inflated profits and asset prices leading to arrests and criminal cases that are still in progress, have closed mills in the last six years and more may be shuttered.
It wasn’t always like this.