CONCERNED: Oakenden's Joe Muscat talks about Mackay Sugar's future.
CONCERNED: Oakenden's Joe Muscat talks about Mackay Sugar's future. Emily Smith

Survival mode wrong choice for Mackay Sugar: grower

MACKAY Sugar shouldn't be fighting simply to survive, it should be striving to become a stronger business than ever, Joe Muscat believes.

The Oakenden cane grower is betting that kind of plan would inspire patience from banks and would see new funding opportunities present themselves to the debt-laden owner of four Queensland sugar mills.

But the strategy launched in February by capital raising firm Kidder Williams to help Mackay Sugar claw back this $212m debt, was far from what Mr Muscat had in mind.

It centred on selling assets and charging growers a levy at $2 per tonne of cane milled.

Growers reported feeling "shellshocked” after the plan was delivered.

Nine meetings attended by more than 500 growers in the weeks that followed were "fiery” and reactions to different aspects of the plan remained varied.

"I don't really agree with what the Kidder Williams group has put forward to Mackay Sugar. He's missed two key areas,” Mr Muscat said.

Those two areas could be found both at the start and the end of a value chain that sugar mills sit at the centre of; a chain Mr Muscat believes really needs to be considered as a whole, rather than as individual pieces.

Firstly, he said, the mills needed to crush more cane and should be looking to help growers increase productivity.

Upping these throughput volumes was critical as the mills had struggled to meet the minimum tonnage of cane needed to turn a profit.

Mr Muscat estimates the productivity range of Mackay's cane farms to range from 39 tonnes of cane to the hectare, right up to 120, and for the average to sit at about 73.

"We really need to address that bottom end of the productivity curve. That's what's contributing to the financial shortfall for Mackay Sugar,” he said.

While Sugar Research Australia and Mackay Area Productivity Services were tasked to that type of job, he said there was scope for improvement.

He also believes the potential for value-adding, at the end of the supply chain, warrants greater consideration.

While some growers have stated that Mackay Sugar's problems stem from the fact it "stepped away from the core business” of producing sugar when it diversified years ago, Mr Muscat believed the opposite.

As a Nuffield scholarship recipient, he visited a mill in Brazil that produced sugar, electricity, ethanol, a form of yeast and pharmaceuticals, and believes Mackay Sugar should be studying that structure, particularly because it was this end of the business that secured the greatest profit margins.

"Part of the issue we've got is we've only been managing the raw commodity and nothing else. If we look at milling groups through Brazil, they add value to that product,” Mr Muscat said.

"To me that's an obvious area and we really should be working hard at that.”

Given 85% of the sugar produced was sold on the world market, it made the business incredibly volatile, as it was constantly at the mercy of world prices.

But if more products were created that could be sold on a more stable domestic market, it would build resilience and give the business better ability to plan.

"If you get out of that world stage, that's the be all and end all to me,” he said.

The other key flaw he saw with Kidder William's report was the move to sell assets - parts of the business that were making money.

While he said it would reduce debt in the short term, it would again increase it's vulnerability to world sugar prices in the long run.

Mr Muscat would prefer to pay the levy, but realises many growers are lacking the confidence to join him.

That's why he believes Mackay Sugar should also consider applying for funding through the Northern Australia Infrastructure Facility, a $5b concessional loans program set up through the Federal Government.

He believes its chances of acquiring this sort of loan would increase if it committed to innovate.

Mackay Sugar chairman Andrew Cappello said he'd had discussions with Federal MPs about applying for the Northern Australia Infrastructure Facility, and the company was considering how it would best address criteria.

He also said he "100% agreed” the entire sugar value chain should be considered, but pointed out Kidder Williams had not been tasked to do that.

Instead, he said considering productivity and diversification were part of normal operations for the company, and would be assessed alongside the Kidder Williams report.

He said the company would meet with growers about the plan again on April 26.

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