Rex Stroppiana does not believe growers will fork out for a levy, particularly after the cyclone.
Rex Stroppiana does not believe growers will fork out for a levy, particularly after the cyclone. Lee Constable

Sell Mackay Sugar while it's still solvent, grower urges

TROPICAL Cyclone Debbie has left Mackay Sugar with "Buckley's chance" of getting growers chipping in to alleviate its $212million debt, Rex Stroppiana believes.

In his opinion the board is left with one option - selling now while it is still solvent.

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The ailing milling company suggested in February that it would charge growers a levy of $2 per tonne of cane milled for five years, as part of a strategy to bring it back in the black.

That constituted about a quarter of the yearly earnings for many growers; a hefty chunk even before Tropical Cyclone Debbie hit last week, leaving growers with damage to repair and productivity losses of 5-10%.

But the damage is also set to cost the company.

 

Mackay Sugar chairman Andrew Cappello.
Mackay Sugar chairman Andrew Cappello. Lee Constable

Mackay Sugar chairman Andrew Cappello said teams had started walking the 850km of the company's cane train lines on Friday and had found much of the ballast, which the line sits upon, had been washed away.

He said "everyone available" was out aiming to fix and re-ballast the line before the start of the crushing season, with priority given to the main sections of track.

Damage to the three mills appeared to be minimal, although he said some electric pumps at Marian Mill went under water.

A detailed scope of works was yet to be put together, which would provide more information on the repair bill and timeframes.

He would not comment on how the cyclone would affect the plan given to the company by capital raising firm Kidder Williams, where the levy idea was first put forward.

"We haven't decided what impacts this will have on Kidder Williams' plans. We are still assessing," Mr Cappello said.

 

BLOWN AWAY: Canegrowers Queensland chairman and Farleigh cane grower Paul Schembri in a damaged cane field following Tropical Cyclone Debbie.
BLOWN AWAY: Canegrowers Queensland chairman and Farleigh cane grower Paul Schembri in a damaged cane field following Tropical Cyclone Debbie. Emily Smith

Canegrowers Queensland chairman Paul Schembri said it was hoping to meet with Mackay Sugar late this week or early next week to discuss how the cyclone would impact this years' crushing season and future plans.

He didn't want to comment on Canegrowers' position on the proposed levy, and how it may have changed after the cyclone, until after the meeting.

However, he did offer the season was shaping up to be "far more difficult for people across the region".

But Mr Stroppiana, who was a Mackay Sugar director for nine years, believes that even before the cyclone hit the company had no chance of securing the levy.

"There was no way I supported the plan before and there's even less likelihood of it being supported now, with the impact of the cyclone," he said.

"A lot of growers wanted to retain Mackay Sugar - until they found out the true financial position of the company.

"And until they learned they were going to have to put their hands in their pockets for up to five to seven years. And it was going to take five years for the milling performance to be turned around."

He believed the company should be sourcing buyers now so it could be sold while it was solvent, and have the chance to negotiate terms it wouldn't be able to if receivers came in.

The first of the terms Mr Stroppiana believed should be included was that any buyer "inject a big heap of capital" to get the mills running efficiently within a year or two - not five.

The other would be a clear line of sight on their pricing platforms.

 

HIT HARD: Bins blown away by Tropical Cyclone Debbie.
HIT HARD: Bins blown away by Tropical Cyclone Debbie.

While he acknowledged many growers were uneasy about supplying a foreign milling company, he said the sugar world was evolving and the Mackay region needed to evolve along with it or get left behind.

No longer did he believe the traditional model was the best option - where growers sold cane to the mill, it was turned into sugar and stored, then sold to Queensland Sugar Limited who would onsell it.

These days, big multinational companies controlled mills in the northern and southern hemispheres, to ensure year-round supply, and controlled marketing, shipping and in many cases refining.

That let them earn margins at every point along the way, insulating what Mr Stroppiana believes is the most difficult part of the business, the sugar milling.

"I think we're in a compromised position and as a grower I think I would be better off supplying a strong international company, that is grower friendly and that makes a margin on all those other things that helps support its milling operation," Mr Stroppiana said.

"In the whole supply chain for sugar, from the paddock to the plate, the least sexiest bit is the sugar mills.

"They're big and they're ugly and they're old and they're capital intensive. Most of the foreign investors that have come here they haven't really come to buy mills they've come to buy access to the sugar."

In his opinion, there would be at least four or five of these companies that would come knocking on Mackay Sugar's door if it were to put the company up for sale.

Singapore's Wilmar Sugar, Thailand's Mitr Pohl Group and China's COFCO already own sugar mills in Australia.

Other agribusiness companies operating in Australia include Europe's Louis Dreyfus and America's Cargill.

LETTER TO THE EDITOR:

What's it worth?

WHAT is Mackay Sugar worth to you? To ask a Mackay grower this may well be putting the cart before the horse. The question is, will you risk your own farm and family's future to save a company run by a board with so many failings?

In 2016 a grower who grew 10,000 ton of cane would have roughly left 700 ton or, after harvesting costs, about $24,000 of profit in the paddock. If he pays $2 a ton he has lost $42,600 this year. The next five years will see him pay $124,000 into 3 mills with arguably the worst crushing figures ever recorded.

A grower at the age of 65 will forgo $124,000 before he retires or tries to sell his farm to someone who will have to pay $20,000 annually for 5 years. For a buyer, this would be economic suicide.

There is no fairness that a family who has just brought their first farm should pay for the board's poor decisions; and for those who are leasing ground at 10% or 12% and simply can't afford to pay $2, the lease become worthless.

Marian Mill's predicted availability for 2017 is 79%. This mill last year was broken down for 11 weeks out of 31 (64%) by the end of the season. Farleigh and Racecourse figures were also embarrassing.

We have no money for maintenance or capital so in May the mill will start in a similar condition to how it finished. Plane Creek farmers are unsure about their profit. We are not. We won't have any!

When you put your own figures into this equation, factor in the very real risk of more standover for 2017 and add that to your losses. The 2018 and 2019 forecasts are also poor. On top of this, how confident can we be that the company that buys the co gen plant does not sue us because Racecourse can't supply enough steam or bagasse due to its performance.

We have had no say for years.

The three mills that crush our cane will always be there, regardless of who owns them. We should not be prepared to work another 5 years for nothing, we have given Mackay Sugar enough.

This is your own business decision and no one else's.

I am not going to risk my future any more. If that means selling then so be it.

Daniel Muscat, Gargett

What do you think? Email the reporter, Emily Smith, at emily.smith@dailymercury.com.au or send your letters to news@dailymercury.com.au



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