An evaluation of the South African sugar industry's small cane growers' financial aid fund.

Abstract

The research is an evaluative case study of the South African Sugar Industry's Small Cane Growers' Financial Aid Fund (FAF). FAF has been operating since 1973 and has advanced 59 597 loans amounting to R175 million to small scale sugar cane growers located in KwaZulu-Natal, Eastern Cape and Mpumalanga provinces of South Africa. FAF, which has been the principal supplier of credit to small scale growers over the period, also operates a savings facility. Small scale grower development in South Africa has been driven by prevailing economic conditions in the sugar industry and its need to meet expanding markets. Small scale grower sugar cane production expanded rapidly from 1973 to 1985 whereafter it has shown a decline. FAF was found to be an important element in facilitating the expansion. An analysis of FAF's financial records indicated that it is subject to policy and procedures not aligned to sustainability. Loans to small scale growers from FAF were advanced at subsidised rates of interest. Calculation of a subsidy dependence index showed that, for FAF to be sustainable, interest rates in the order of 34% need to be charged. The viability of small scale growers themselves is an important aspect of the provision of credit. An analysis of small scale grower production costs for the period 1988 to 1996 indicated low margins per unit of production. Inefficiencies in weed control, fertilization and contracting were identified as important factors contributing to poor performance. Cashflow models using different methods of production and productivity indicated that small scale grower margins can be increased. Farm systems research is proposed to address improved economic performance. There have been two divergent approaches to small scale grower development in the South African sugar industry. The first was a highly directed or managed approach while the second relied on provision of agricultural extension and training to enable small scale growers to develop. The underlying philosophies of these approaches were contrasted with findings indicating that a great amount of dissatisfaction, misunderstanding and mistrust are evidenced in the highly directed/managed approach. Linear discriminant analysis indicated that growers using loans were more likely to have used mill contractual services, have produced sugar cane for a greater number of seasons and have larger areas planted to sugar cane than growers who did not use loans. It was also shown that small scale growers using mill contractual services appeared to use a greater number loans, produced sugar cane for a greater number of seasons, had larger areas planted to sugar cane but exhibited lower yields per hectare and had higher loan default rates, than small scale growers not using mill contractual services. The provision of credit enabled expansion of the small scale grower sector to take place. However, in terms of individual circumstances of small scale growers, those utilising FAF loans and those utilising services of mill contracting companies did not appear to have been as successful as those growers who developed independently of credit and managed development procedures. Overall it is found that FAF' s original and revised objectives have not been met. It is noted that objectives of sugar mills to increase sugar cane supplies have been achieved. In concluding it is recommended that FAF be restructured to broaden access to finance by small scale growers, to mobilise savings and attain sustainability of institutions providing required financial services.