After a difficult 2010 season, the 2011 crop is a patchy affair, with some good crops and some poor crops and not much in between.
The clean-up after Cyclone Yasi has been inhibited by constant wet weather and the debris clean-up in front of harvesters will add to costs and slow down the 2011 harvest. Cash flow is tight and has been greatly exacerbated by one of the most astonishing incidences of post-deregulation rough handling of farmers at the hands of their mills.
At a time when milling companies are urging farmers to form a ‘peak body’, to work closer together in plotting the industry’s future and to investigate restructuring the Australian sugar industry’s Research Development &Extension, farmers have been betrayed by the ‘fine-print’ in a contract that they had no knowledge of, are not a party to, and are not yet likely to see in full. What is it? It is the now infamous RSSA, the Raw Sugar Supply Agreement between Queensland Sugar Limited (QSL) and the seven milling companies who supply it.
The RSSA sets out this relationship, down to what should happen if pools are caught short and therefore, where losses are to be channelled. In a season such as 2010 where some mills were unable to deliver their committed tonnage, requiring adjustment to the seasonal pool, the costs or benefits from settling futures positions should have been allocated to the pricing platform pools, according to the RSSA.
However in late 2010 when there was a cost of $105.5milion to allocate to the pricing platform pools, some mills with little exposure to the seasonal pool wanted to novate the RSSA with QSL and allocate these costs to the shared pool and therefore over all tonnes. Why is this not fair? It is not fair because in October/November 2010, the seasonal pool had already absorbed its share of costs, amounting to around $32 million above and beyond the $105.5 million. The seasonal pool was thus expected to take a second hit. In March 2011, the mills and QSL agreed to amend the RSSA with respect to the 2010 season, triggering the new and unfair allocation of costs.
Farmers are furious and as many are now out of contract, they are not keen to sign up with any mill until they receive assurances that this will not happen again and that their price calculation is completely transparent. Many farmers and farmers groups are refusing to accept such treatment and are taking legal action.
Farmers who had forward priced are seeking redress because they believe their mill had confirmed their forward price. Famers with total exposure to the seasonal pool are seeking redress because they believe they should not have their price twice decreased by an unfair allocation of costs. Both groups are aggrieved because they were never informed of the possibility that any of this could happen and they were not informed that their mills had entered into the RSSA after farmers had signed contracts with their mill.
What this incident has done is to demonstrate the ‘iron and clay feet’ of industry cooperation. It has shattered goodwill, it has demonstrated raw self-interest and it has caused many farmers to assess their future in the industry.
This is astonishingly bad timing for an industry which has suffered such a difficult season. It is also extremely damaging to farmers who had budgeted on their price, bought machinery and farm inputs, and conducted capital works only to be told that they won’t able to pay for them because their mill is not paying them in full. It has the potential to bankrupt the most delicately-poised farm businesses.
For the industry to proceed there must be full disclosure by mills of factors which could affect farmers’ pricing. There should also be a reversal of the unashamed grab at farmers’ funds. Until then and at a time when we should be focusing on rebuilding the industry and handling the 2011 harvest, we are now focusing on legal actions throughout much of Qld industry.