The disastrous 2016 crushing season has been blamed almost entirely on poor milling performance.
The disastrous 2016 crushing season has been blamed almost entirely on poor milling performance. Lee Constable

BIG READ: Mackay Sugar faces challenging 2017

GROWERS who have spent the best part of their lives supplying cane to Mackay Sugar have grave concerns about the milling company's future.

Although it was the longest crushing season in more than 36 years, the fact that 350,000-400,000 tonnes of cane will remain in paddocks has been blamed almost entirely on poor milling performance.

Since 2010 availability has fallen consistently from 91.1% to about 79% this season.

As Canegrowers Queensland chairman Paul Schembri said "you can't run a modern and efficient sugar industry when the mills are broken down almost 20% of the time".

Mackay Sugar chairman Andrew Cappello agreed that the amount of money spent on mill maintenance should have been increasing every year.

In 2016 $45.8m was spent.

 

Graphic

Mr Cappello explained that it could only spend on maintenance what it made through the crop.

In the late 1990s and early 2000s a range of factors, including low sugar prices, poor conditions, outbreaks of disease and rising value of property had combined to drive people out of cane growing. Mr Cappello said this reduced the amount of Mackay caneland by about 1.15mt of cane, or 15,000ha.

While the purchase of the Mossman Mill in 2012 brought 1.3mt of cane back to the business, he said the three Mackay Mills had continued to struggle to either source or process the 6mt of cane required to turn a profit.

While these smaller crop sizes had hurt the business, the company's financial performance had also swung dramatically since 2010.

 

MORE than a year after legislation passed giving growers choice in sugar marketing, Mackay Sugar's chairman Andrew Cappello still wishes the grower-owned company had been given an exemption.
MORE than a year after legislation passed giving growers choice in sugar marketing, Mackay Sugar's chairman Andrew Cappello still wishes the grower-owned company had been given an exemption.

Mr Cappello said this was because it was linked closely to the sugar price, which was highly changeable.

In 2015-2016 it recorded its biggest loss in at least 17 years - $26.1m.

However, in 2010 it made an impressive $44.28m, followed by $0.5m in 2011 and a $12.52m loss in 2012.

During this period it had focussed on diversification investments, like the $25.3m Mossman Mill and a $40m contribution to the cogeneration plant, which uses bagasse from the mill to produce steam and create electricity.

Mr Cappello said each of these investments had strengthened the company.

But when asked where money that could have gone into maintenance had been spent, Mr Cappello cited the changes to the cane payment formula, which changed 10 years ago to pay growers for molasses and fibre, as well as sugar.

"We changed our cane payment formula about 10 years ago, which has taken in excess of $65m off the available funds that the mill could put back into the factory," he said.

 

Harry Bruce  cartoon mackay sugar troubles
Harry Bruce cartoon mackay sugar troubles contributed

He also said that after an analysis determined that half the milling downtime was "attributed to people issues" rather than infrastructure issues, a new training and cross skilling program was introduced at the end of 2016.

By the end of February Mr Cappello hoped to share with growers a report from capital raising firm Kidder Williams, which was currently devising a strategy to bring money back into the business and address maintenance issues.

While growers have speculated it is highly likely the firm will recommend changing the cane payment formula, Mr Cappello said he had not yet seen the final report and did not wish to comment on that.

Mr Schemrbi, who also highlighted that he did not know what the report would recommend, said Canegrowers would not support any measure that would see growers "take a financial haircut".

Concerns have also stemmed from Kidder Williams listing its specialities as "mergers, acquisitions and divestment" on its website.

However, Mr Cappello dismissed this.

"We've been in tough times before. We'll come to (growers) with a plan and it will show how we can work our way through this. I mean everyone gets a bit nervous at times when things are tough," he said.

Despite the struggles the 2016-2017 season presented, times had indeed been tough before.

In the 2010-2011 financial year a season of "almost continual rain" saw 13% of the crop, or 750,000t, of cane stood over. This may have contributed to the $12.52m loss in 2012, but by 2013 it was $16.3m in the black.

Concern for the future could hardly be put more bluntly than did former Mackay Sugar chief executive Ron Swindells, who began the company's annual report in 2000 by quoting US President Harry Truman: "I don't give 'em hell, I just tell them the truth and they think it's hell".

"In a sense, these words capture the situation that confronts the Queensland raw sugar industry at the present moment," he continued.

While many would say the line rings true for the Mackay industry once again now, Mr Cappello called on growers for unity, saying it had "just got to stick together and work through it".

LOST PRIDE | Mackay Sugar cane growers believe lost pride has contributed to the falling milling performance over the past five years

TED Bussey remembers the days when competition ran hot between Mackay Sugar mills, to see which could crush the most cane each week.

 

Mt Martin cane grower Ted Bussey.
Mt Martin cane grower Ted Bussey.

Those were the days when workers had a fair amount of pride in working for the milling company, the cane grower said.

But Mr Bussey believes that pride has dissipated and that has contributed to the falling milling performance over the past five years.

Mackay Sugar chairman Andrew Cappello also said half the down time was caused by "people issues".

"There was once a time when Marian (mill employees) wouldn't let Farleigh put it over them. The people were really proud to work there," Mr Bussey said.

But he also said that during the past few years management had sacrificed maintenance work in order to expand, and that had now culminated in one of the most disappointing seasons he had witnessed.

"Now we're like a broken tractor - we'll be very hard to fix," he said.

Mr Bussey said there were only one or two weeks when he got his full allotment of 41 bins, and often had to make do with about 12.

When the mills stopped crushing this week, he said, his workers were "barely 90%" of the way through harvesting his crop, which was disappointing given profit is usually found in the last 10%.

"(The mill has) got to crush it in six months or else they can't make money. It's left us all very disappointed," he said.

Fellow cane farmer and former Mackay Sugar director Bill Hobbs was similarly frustrated.

He said to keep the company going problems needed to be identified now and fixed. "Otherwise we will lose our Mackay Sugar, there's no doubt about that. It's a fairly high risk," Mr Hobbs said.

"We need to make money."

Mr Hobbs said he only received a full allocation on bins about once every seven days this season.

"The mill just doesn't have its availability up high enough. It's a quick way to go broke," he said.

GROWERS' CHOICE | Negotiating how to provide marketing choice to Mackay Sugar growers has cost the company substantial time and resources

MORE than a year after legislation passed giving growers choice in sugar marketing, Mackay Sugar's chairman Andrew Cappello still wishes the grower-owned company had been given an exemption.

The Real Choice in Marketing Act passed through Queensland Parliament in 2015, after a number of foreign-owned milling companies announced their intention to break from traditional marketing arrangements.

As cane growers cannot choose which mill turns their cane into sugar, as that depends on the location of the farm, the legislation was designed to preserve competition in the industry by allowing growers to choose who marketed the sugar after it was milled.

But Mr Cappello indicated that negotiating how to provide that choice to its growers, given its long standing marketing commitments, had cost the company substantial time and resources.

"People say Mackay (Sugar) is not affected but I can tell you we've spent a lot of time and resources dealing with grower choice," Mr Cappello said.

"Mackay Sugar is the innocent bystander in all this grower choice marketing. We didn't have a problem with the way we were dealing with our growers, our growers didn't have a problem, it was all smooth sailing.

"Then this grower choice was introduced... we've gone to a lot of expense, legal advice, investigation, a lot of resources and time have been spent on how do we manage that for our growers. It's quite complicated and a lot of our growers aren't even aware of it. But we have to comply with the new legislation."

Currently, he said, the company had a commitment to supply 450,000t of sugar each year to Sugar Australia, and most of the remaining sugar was sent to Queensland Sugar Limited for export.

He worried how that 450,000t would be met if growers opted for a different marketer once the legislation came into effect this year.

"It would have been great if Mackay Sugar, being a grower owned company, had been carved out of that legislation so that it basically didn't apply to us," he said.

"There are some quite serious issues going forward for us as to how we mange it."

He believes the legislation will already have cost the Queensland sugar industry millions of dollars in legal fees alone.

On Wednesday the Australian Financial Review quoted Foreign Investment Review Board chairman Brian Wilson's warning against regulations that helped Australian companies to the detriment of foreign companies like milling company Wilmar, believing it would damage the economy and investment opportunities.

The article alluded to this grower choice legislation.

Uproar followed as sugar industry stakeholders, frustrated by Mr Wilson's sticking up for Wilmar, argued that the legislation put all milling companies in the same position.

Mr Cappello did not wish to respond to Mr Wilson's statements.

Canegrowers Queensland chairman Paul Schembri was one of the stakeholders angered by the notion that foreign milling companies had been targeted by the legislation.

 

As Canegrowers Queensland chairman Paul Schembri said
As Canegrowers Queensland chairman Paul Schembri said "you can't run a modern and efficient sugar industry when the mills are broken down almost 20% of the time”. Andrea Davy

He was also surprised that Mr Wilson would allege that Wilmar had been treated as second class, when he believed some companies had attempted to treat Australian farmers as second class.

However, he saw no reason for Mackay Sugar to be concerned by the grower choice legislation, and said "very constructive discussions" had already been had about ensuring it met current supply obligations.

"(This legislation) should not be a threat to Mackay Sugar," he said.

Mr Schembri went on to highlight the company would have other challenges ahead in 2017, stemming from the 350,000-400,000t of cane stood over and the lateness in the season at which this season's crop was crushed.

"The productivity difficulties next year are not just going to be the standover cane. It's the fact that so much of our crop, about 30%, had to be crushed so late in the season," he said.

"That meant lower sugar content, lower yield, everything."

Mr Cappello agreed that this season had been characterised by the lower sugar content of the cane, which meant it would have less sugar to sell, but would still have to meet the high fixed costs that went into crushing it.

"This year we will be flat just trying to make 13 CCS. So we've processed a hell of a lot of cane to make less sugar, that's the issue for this year," he said.

"Milling is a very high fixed costs business and you really have got to get above that fixed cost before you start making a profit."

The late crushing season would affect future crops, particularly the one due to be harvested in June this year.

"To grow a crop of cane you need as much time to grow it, in terms of exposure to sunlight and water. So if you harvest something in December by the time the crushing period comes around in May June, it's growing period is extremely, extremely restricted," Mr Schembri said.



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