longitudinal impact assessment study of sugar producers in malawi

Ideally, if things were operating properly, the company is supposed to only be growing
sugarcane and sell it to Illovo. The company would then declare dividends to the Trust
who would then declare the same to the farmers. The company has not yet started
making profits since it is still servicing a huge loan burden. As a result the company
has not yet declared any dividends and the loans are not being serviced properly. As a
result there hasn’t been any meaningful development from the Trust. Any
developments that have been experienced so far in the Trust are from the Premium
money from Fairtrade including helping the company with cash for its operations. The
company receives 30 percent of the Fairtrade Premium funds which are mainly used
for cane fields’ plough out and replanting.
Another major setback to the development of the Trust has been the fact that it did not
have a separate secretariat dedicated to managing its day-to-day activities. This has
been alleviated since the receipt of EU funding for the development of Phase III of the
scheme. Under this funding a Project Manager for the Phase III was recruited including
a Finance Manager. The two have also been given the task of managing the activities
of the Trust. It is expected that once the Phase III is operational and the EU Project
has ended, these positions would continue to exist within the Trust set-up. And it is
also hoped that with the large area being added through Phase III, fully operational by
2011, the debt will quickly be reduced.
Farmers are still not playing their role properly but the attitude is slowly changing with
new management in place. What has been observed is that there is a serious free
riding attitude that farmers have developed. This is for two main reasons:
1. Each farmer is given the same advance (MK12,000 per month) regardless of
the effort they put into managing their cane plots.
2. Secondly, farmers share equally 40 percent of the Fairtrade Premium funds
which they receive in form of building materials, household assets, paying
school fees for children or for themselves and so on. In this way, the Fairtrade
Premium sharing arrangement does not reward the hard working farmers. This
in some cases also discourages the hardworking farmers since the financial
gains are the same across the board.
A major problem faced by the Shire Valley Cane Growers Trust (SVCGT) is the huge
loan burden that it has with various organizations. These are as follows:
1. The Illovo overdraft, which expires in 2016/2017
2. The EU Investment Bank loan, which expires at the end of 2015
3. The Illovo Holdings Limited loan (MK9 million – US$64k 5 )
4. The World Bank soft loan obtained through the government (MK224
million [US$1.6], of which 60% is for development of the Trust, and 40% is
for development of the Chikwawa District Assembly).
The implication of these loans is that it is impossible for KCGL to make an operating
profit on their cane production. The high interest payments cannot be covered even
with a 25% deduction on cane payments by Illovo. This causes resentment among
the farmers, and has led to farmers paying themselves first in cash and now in kind
out of the Fairtrade Premium in order to supplement their income from cane sales to
Illovo.
5 Exchange rate at time of writing MK140 = US$1
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