Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Jonathan Bower Improvement of Key Services to Agriculture Land Resources Division Secretariat of the Pacific Community
2014
European Union
Contents Acronyms....................................................................................................................................................7 Cost of harvesting and transport in the Fiji sugar industry........................................................................8 1.
Executive Summary............................................................................................................................8
2.
Overview of the system of harvesting and transport of sugar cane in Fiji.......................................10
3.
Cost of Harvesting............................................................................................................................13
4.
5
3.1
Manual Harvesting: Cane cutters.............................................................................................13
3.2
Manual Harvesting: Sirdar........................................................................................................20
3.3
Manual Harvesting: Headman..................................................................................................21
3.4
Manual Harvesting: Linesman..................................................................................................23
3.5
Manual Harvesting: Water Carrier............................................................................................24
3.6
Mechanical Harvesting.............................................................................................................26
Cost of transport of cane to mill.......................................................................................................28 4.1
Lorry and tractor transport to mill............................................................................................28
4.2
Tractor transport to railway in-field..........................................................................................40
4.3
Rail transport............................................................................................................................40
Conclusion and Recommendations..................................................................................................42
Bibliography and Data Sources.................................................................................................................44
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
List of Tables Table 1: Cane cutter earnings from FSC Harvest and Transport Data (1591 cutters, 2012)...................11 Table 2: Total payment per tonne by mill area.......................................................................................12 Table 3: Factors affecting the cane cutter rate........................................................................................14 Table 4: Costs that vary (variable) and do not vary (fixed) with the number of kilometres..................28 Table 5: Summary of costs of running a tractor-trailer and a lorry........................................................30 Table 6: Estimated appropriate charges and upper limit charges per tonne given distance to mill. All figures are in 2012 FJD........................................................................................................................35
List of Figures Figure 1: Lorry/tractor trailer gang...........................................................................................................7 Figure 2: Portable line gang.......................................................................................................................8 Figure 3: Goodwill payment, per grower, per season.............................................................................11 Figure 4: MoGA rate paid per tonne.......................................................................................................12 Figure 5: Estimated total amount paid per tonne...................................................................................13 Figure 6: Sirdar rate per tonne harvested...............................................................................................17 Figure 7: Sirdar season earnings from harvesting...................................................................................18 Figure 8: Headman rate per tonne harvested.........................................................................................19
Figure 10: Linesman rate per tonne harvested.......................................................................................20 Figure 11: Linesman harvest season earnings........................................................................................21 Figure 12: Water Carrier harvesting rate per tonne................................................................................22 Figure 13: Water Carrier harvest season earnings..................................................................................22 Figure 14: Median and 3rd quartile of number of trips to mill, and mean distance to mill...................26 Figure 15: Lorry and tractor transport – charge per tonne and distance of grower from mill..............27 Figure 16: Lorry and tractor transport – actual charge per tonne, average charge per tonne, average cost per tonne............................................................................................................................31 Figure 17: Estimated appropriate charge per tonne...............................................................................33 Figure 18: Proposed upper charge limit..................................................................................................34
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Figure 9: Headman season earnings from harvesting............................................................................19
Acknowledgements Thanks to Mr Timothy Brown and to members of the Sugar Industry Tribunal (SIT) team for the hospitality, and efficient and willing assistance provided in organising interviews with sugar cane growers, cane cutters and other members of the industry, and for providing necessary data. I am grateful to Mahendra Prasad of FSC for helpfully providing vital data on cartage costs and cane cutters’ pay. Appreciation goes to Mukesh Kumar at LCPA for helpful hospitality and support in organising interviews in Labasa. Gratitude is also due to Mohammed Habib at the EU Coordination Unit for recommending that I be engaged by SIT for this study.
Acronyms
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
1
EU
European Union
FJD
Fiji Dollar
FSC
Fiji Sugar Corporation
LCPA
Labasa Cane Producers Association
LRD-SPC
Land Resources Division, Secretariat of the Pacific Community
SCGC
Sugar Cane Growers’ Council
SCOF
Sugar Commission of Fiji
SIT
Sugar Industry Tribunal
SPC
Secretariat of the Pacific Community
Disclaimer This document has been produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
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Cost of harvesting and transport in the Fiji sugar industry 1. Executive Summary This study presents data and recommendations on managing the cost to the grower of harvest and transport processes in the Fiji sugar industry. Over the last few decades, a combination of a decreasing price received by the farmer per tonne of cane, increasing proportion of cane delivered by road, and increasing fuel prices and consequently increased transport costs, has contributed to a squeeze on the profitability of cane farming to the growers. Farms furthest from the mills are at greatest risk of exit from the market due to increased transport costs. Harvesting costs have remained approximately the same in real terms over the last several years but are a high proportion of total production costs per tonne. According to SPC (2012) harvest and transport costs together average between 42% and 50% of total production costs, and transport costs can be much higher if the grower is based a long way from the mill. A major, unpublished study on harvesting and transport in the Fiji sugar industry was completed in 2010, commissioned by the European Commission and completed by Centre de Coopération International en Recherche Agronomique pour le Développement (CIRAD). This builds on work done on harvest and transport in the previous 15 years, and was conducted as a follow-up to a 2008 feasibility study on rural infrastructures for the National Adaptation Strategy for Fiji as part of a wider effort by the sugar industry to overhaul harvest and transport. The study documents logistical issues in depth including a literature review of existing work done on harvest and transport in Fiji. It outlines new proposals that would require considerable investment but that might yield savings for harvest and transport costs. The proposals can be summarised as follows: i) mechanisation of cane harvesting and loading on flat land, and mechanisation of loading on rolling land; ii) the establishment of trans-loading centres set up away from the mill, to which farmers would deliver cane, which in theory would be the main cost-saving measure due to the use of cheaper rail transport as well as more efficient, larger vehicles between the trans-loading centres and the mill; iii) upgrade of mill reception floors; and iv) a revised payment system. The study builds on work done in the previous 15 years.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
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In spite of the depth of the 2010 CIRAD study, due to time constraints it was “not … possible to finalise more specific data detailing the cost structure and relating elements of Harvest & Transport costs to specific operations (such as loading, good-will payments … etc.)” This SPC paper is relatively modest in scope and does not intend to duplicate the 2010 study; it merely aims to quantify and analyse the costs of harvesting and transport in Fiji and make specific recommendations to manage these costs in a way that is fair to all stakeholders, assuming that the current system will not change radically in the short to medium term. One novel aspect of this paper is that data on distance to mill by road are combined with data on the cartage charge and the cost of transport, for the first time, and a relationship is estimated. The resulting transport cost calculations could be used to inform an economic analysis of trans-loading centres if this option is further pursued. In mid-2012 the Prime Minister, Ministry of Sugar, Sugar Industry Tribunal (SIT) and Fiji Sugar Corporation (FSC), conducted consultations with sugar cane growers, and the costs of harvest and transportation arose as primary threats to profitability. In particular, growers were concerned to eliminate exploitation in the labour and road transport markets through overly high prices, which truck drivers or cane cutters can exact due to localised transport or labour shortages. Consequently, and at the recommendation of EU Coordination Unit, an economist from SPC was engaged to conduct this study. The analysis is conducted from the perspective of sugar cane growers and gang members, owners of tractors, trucks and harvesters, and cane cutters, and aims to represent their concerns and costs as accurately as possible given the available data and discussions. Data were taken from sources including a relatively large, disaggregated sample of data of cane cutters’ pay from FSC; an industry-wide dataset on cartage costs, also from FSC; an industry-wide dataset on gang distance to mill from SIT; a set of 100 MoGA agreements from a range of sectors from SCGC offices; and a set of interviews conducted with a total of 53 sugar cane growers, truck and tractor owners, and cane cutters based close to Lautoka, Nadi, Ba, Rakiraki and Labasa, which was facilitated by SIT.
Section 2 gives a brief overview of the harvesting and transport system in Fiji, and the costs involved for growers. Section 3 quantifies and makes recommendations on harvesting costs; Section 4 does the same for transport costs. Section 5 concludes and summarises recommendations made in the previous two sections. Recommendations are made in the conclusion on regulation to eliminate exploitation, means to control (and not to control, where appropriate) harvest and transport costs, and topics for further investigation. A common theme throughout the recommendations is that increasing the number of tonnes harvested and transported to mill tends to mildly reduce harvesting costs per tonne and boost farmers’ incomes. However, for growers who are far from the mill and for whom transport costs threaten profitability, the best remedy for future increases in transport costs may be conversion back to rail transport; hence further investigation into the costs, benefits and financial sustainability of re-expansion of rail transport is recommended.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
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2. Overview of the system of harvesting and transport of sugar cane in Fiji To examine harvesting and transport of sugar cane it is first necessary to understand the system used in Fiji. Harvesting and transport are an integrated process so they are described together. Cane growers are required by FSC to be part of a “gang”, which can vary between about five and 15 growers. A gang will jointly organise harvesting and transport of cane at harvest time for its members. At the FSC level, a harvesting plan is created, covering the entire season, in which a quota of a specific tonnage to be harvested is assigned to individual growers. Where geography and FSC budget and institutional constraints allow, rail trucks sufficient to deliver this quota are allocated to the appropriate growers; the other farmers deliver their cane using either a lorry, or a tractor and trailer. The following two diagrams describe the process of harvesting and transport for gangs that use road transport and for gangs that use rail transport, and the costs that are incurred. Harvesting
Sugar cane cut by sugar cane cutters
Transport
Sugar cane loaded on to trucks by cane cutters and possibly Headman and Water Carrier
Cane delivered to mill by truck or tractor-trailer
Harvesting costs: wages for Sirdar, Headman, Water Carrier and Cane Cutters Transport costs: all truck/tractor-trailer costs and cost of employing a truck or tractor driver
Figure 1: Lorry/tractor trailer gang
Harvesting Sirdar: Administration, logistics
Linesmen: Field to line
Head Linesman: Logistics Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Sugar cane cut Rail trucks arrive by rail at the Rail trucks taken off line by ► part of line close to the gang, ► tractor and winch trailer ► by sugar cane cutters sent by FSC (Linesman or Head Linesman) and placed in field.
5
Transport
FSC: Line to mill Rail trucks loaded and taken back from the field to the line via winch trailer (Head Linesman and/or Linesman)
Cane delivered
Cane delivered
Harvesting costs: wages for Sirdar, Head Linesman, Linesman, Water Carrier and Cane Cutters Transport costs to farmer: cost of running and maintaining a tractor (sometimes two tractors) and winch trailer Transport costs to FSC: cost of coordinating, running and maintaining rail system and rail trucks
Figure 2: Portable line gang
The challenge of central coordination Quotas are usually assigned for only a portion of a grower’s crop, so farmers are required to deliver two or three daily quotas throughout the June to December harvesting and crushing season. The reason for this is that cane yield is not maximised either at the beginning of the season or the end, but in September and October; and it is not logistically possible to crush all cane during these two prime harvesting months. Thus for the sake of fairness and to ensure grower cooperation, the FSC harvesting plan divides the quotas for all growers equally into optimal and suboptimal portions of the harvesting season. The legal means of enforcement of this system is known as the “Master Award”, a document that stipulates the rights and responsibilities of growers, gangs and mill.1 It is beyond the scope of this study to document problems in the harvesting and transport processes from an industry management perspective, which are dealt with in the European Commission-funded CIRAD study from 2010. However, Davies (1998) is worth quoting for historical context: But even with [the Master Award], coordination has proven to be an inexact science, with inevitable difficulties. Particularly problematic is that farmers often harvest more than their quota, especially in the most favoured months. This excess lies around waiting for transportation and milling and serves to disrupt the harvesting plan. Compounding this are periodic mill breakdowns, labour problems and the inefficiency of the rail transport system, which is slow, prone to derailments, and often unreliable. The combined effect of coordination problems, failure to abide strictly by the terms of the harvesting plan, transportation and milling disruptions and the fact that all cane is cut manually rather than mechanically is that the elapsed time from cutting to crushing is high. In the previous two years (2012–2014) the mills have performed significantly better than previously, due to a concerted effort by the sugar industry, and less cane has been left standing in the field as a result, but other challenges remain.
Existing studies on harvest and transport in the Fiji sugar industry A great deal of work, mostly unpublished, has been done in the past 20 years on harvest and transport in the Fiji sugar industry. A list of reports on the topic is presented, as listed in the European Commission-funded CIRAD (2010) study. • Three MEM Associates Pty Ltd reports (1996, 2002, 2008). Commercial-in-confidence. • Davies, J. (1997) An analysis of the efficiency of Fiji’s sugar cane rail system. University of the South Pacific and Arcadia University, 1997.
• Smith proposals for an integrated mechanical harvesting system in Drasa sector (2003) • Various in house papers prepared by both FSC and SCOF (2006/2007) • The EU funded feasibility study on rural infrastructures (2008) • Sugar Commission of Fiji internal report on the design of trials to be implemented during 2008 to address H & T issues. • Lal, P. N. and Rita, R. 2005. Sugar Cane Production in Fiji: Farmer Profile and Farm Profitability. Sugar Commission of Fiji, Lautoka. There is therefore no up-to-date evaluation of the cost of harvest and transport in the Fiji sugar industry, and to the author’s knowledge none of these studies estimates the relationship between distance to mill and cartage charge per tonne faced by growers.
1 Davies, J. 1998. The causes and consequences of cane burning in Fiji’s sugar belt. The Journal of Pacific Studies, Volume 22, 1998, 1–25. School of Social and Economic Development, Editorial Board (USP).
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
• STM, Government of India (2004) Technical review of the rail system. and various technical audits of the rail system carried out for ADB (2005) and by the Indian STM (2005)
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3. Cost of Harvesting This section outlines findings from the available data on the cost of manual cane harvesting, which are predominantly labour costs. Where appropriate, recommendations are laid out. In addition to manual harvesting, mechanical harvesting is then considered, but limited quantitative analysis is shown on this given that there is a very small number of harvester owners that exist and that were available for discussion. The analysis of cane cutter pay in Section 3.1 is based on data on 1,591 cane cutters in 2012, provided by the Fiji Sugar Corporation’s Harvesting and Transport team. However, this did not contain information on rates paid to other members of the harvesting team such as the Sirdar, Head line man, Line man and Water carrier, covered in Sections 3.2 to 3.5. For this purpose 100 MoGAs from 2011 were retrieved in 2012 from Sugar Cane Growers’ Council sector offices, of the official gang rate paid to cane cutters. The geographical distribution was: 54 MoGAs from Labasa, 24 from Lautoka, 15 from Rarawai and 6 from Penang.
3.1 Manual Harvesting: Cane cutters Every gang has a Memorandum of Gang Agreement (MoGA) which assigns each grower the responsibility to provide a set number of cane cutters. These cane cutters may be local family or community members, or may be brought in from villages which may be tens of kilometres away. The total amount of income a cane cutter receives is not just the official gang rate recorded and paid to them by Fiji Sugar Corporation, but may also includes the following: • an additional payment per tonne given by the growers, which is very common (most cane cutters) • a “goodwill payment” made to cane cutters at the start of the season, to help buy food and other essential provisions • basic accommodation or “barracks”, electricity and water • additional payments throughout the season for food either in kind or in cash • transport costs; these may be paid if the cane cutter has come from a distant village to cut cane • medical payments.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
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What is provided to each cane cutter depends on the individual relationship between the cane cutter and the grower or gang, and on the relative scarcity of cane cutters: cane cutters have more bargaining power in areas where they are more in demand. Growers record the official gang rate in each MoGA form. Payments beyond the official MoGA rate per tonne are not listed in the current MoGA form and hence had to be collected specially by the FSC Harvesting and Transport team in 2013, for the 2012 season. Data were available from a sample of 1,581 cane cutters representatively distributed across Fiji. A summary of the data is shown in Table 1. Table 1: Cane cutter earnings from FSC Harvest and Transport Data (1591 cutters, 2012) Morning tea or more (% of growers provided with morning tea)
29%
Housing (% of growers provided with housing)
20%
Goodwill payment (average Additional (non-MoGA) per grower, FJD) rate per tonne (average per grower, FJD)
32.29
3.60
MOGA pay (average per grower, FJD)
9.66
Table 1 shows that nearly a third of cane cutters provided either morning tea, or morning tea plus afternoon tea, and 20% of cutters were provided with some form of housing or “barracks”, whether or not including power, water and other amenities. The average additional non-MoGA amount paid per tonne as recorded from the sample of 1,591 cane cutters was 3.60 FJD. Goodwill payments, which are made at the start of the season, are an average of 32.29 FJD per grower. However, the average of goodwill payments obscures the true picture. Most cutters do not receive goodwill payments, but a few do receive them and payments can go up to 450 FJD in the highest cases.
Figure 3: Goodwill payment, per grower, per season
This study estimates a figure for the effective total payment to cane growers per tonne, aiming to value morning tea at 1.33 FJD per tonne (2 FJD per day divided by 1.5 tonnes per day), and housing is valued at 1.67 FJD per tonne, based on a housing value (including imputed rent value, electricity, water and maintenance) of 50 FJD per cane cutter per month and 150 tonnes harvested per cane cutter over a full 20-week season. The goodwill payment, if it exists, is simply divided by the number of tonnes cut by that cane cutter. The estimate of the average of the total amount paid by growers to cutters per tonne is 14.31 FJD. Table 2: Total payment per tonne by mill area
Mill area
Average $14.02
Lautoka Penang Rarawai Fiji
$13.96 $13.21 $15.27 $14.31
The averages are weighted2 according to the number of tonnes. For example, in the national average shown in Table 2, the averages from the Lautoka and Labasa areas, which harvest more cane, carry more weight than those from Rarawai and Penang. The average amount of cane harvested per cane cutter in the 2012 season for the sample of 1,591 is 75.7 tonnes. The following figure shows the distribution of official MoGA payment amounts in the sample. The median MoGA rate paid out in 2012 was 9.47 FJD. These data represent the actual amounts recorded as having been paid out by FSC data, rather than the official amounts in the MoGA data; they were similar but the actual amounts paid out were usually slightly less than the official amounts.
2 This weighting was carried out in the calculation at the individual grower level (e.g. the rate earned by a grower who harvests 150 tonnes is given more weight than the rate earned by a grower who harvests 10 tonnes). The average rate of two growers is calculated as follows: grower 1 earns 16 dollars per tonne and harvests 100 tonnes and grower 2 earns 10 dollars per tonne and harvests 50 tonnes. Grower 1 revenue + grower 2 revenue = total revenue. This is then divided by the number of tonnes to get the average rate per tonne. In this case, it is
((16*100)+(10*50))/150 = 14 dollars.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Labasa
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Figure 4: MoGA rate paid per tonne
Figure 5 shows the distribution of the estimated value per tonne, which includes the MoGA amounts paid as in Figure 4, but now includes the additional amount per tonne paid “from the grower’s pocket�, plus the estimated values for morning tea, housing and goodwill payments.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
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Figure 5: Estimated total amount paid per tonne
Figure 5 shows a median total amount of 14.65 FJD per tonne across the whole sample, which compares to the sample mean (average) of 14.31 FJD per tonne. It is not possible to plausibly estimate the weekly earnings for an individual grower without knowing the number of weeks that grower worked. However, assuming that it is possible to harvest 150 tonnes in a full 20-week season, this gives a rate of 7.5 tonnes harvested per week. Thus under these conditions, cane cutters earn the equivalent of a maximum of 107.33 FJD per week on average. Assuming a 40 hour week this represents 2.68 FJD per hour, which is slightly higher than the national minimum wage of 2 FJD per hour. However, it is worth bearing in mind three factors. First, many cutters do not work every day, and have to wait around for the right time to cut, especially if they have come from a long distance and have no other income source; second, many cane cutters do not cut 7.5 tonnes per week (1.5 tonnes per day); and third, a small proportion of this amount is paid in kind, in the form of morning tea or housing rather than cash. For example, a cane cutter who cuts 4 tonnes per week, earns 10 FJD per tonne, and works 30 hours rather than 40, will earn 1.33 dollars per hour.
Appropriate cane cutter earnings The appropriate total income given to cane cutters per tonne depends on the factors listed in the following table. Table 3: Factors affecting the cane cutter rate Impact
Work carried out by cane cutters
Some cane cutters only cut the cane, which is picked up by other team members such as linesmen, but other cutters are also required to load the cane into the truck or trailer.
Poverty
Cane cutters earn a maximum average of 2.25 FJD per hour, and some earn much less. Cane cutters are some of the poorest labourers in Fiji and fairness may put upward pressure on the appropriate amount to pay them.
Scarcity of cane cutters
Greater scarcity puts upward pressure on the per-tonne rate.
Grower profitability
In general, growers are struggling from a profit perspective, putting compelling downward pressure on the rate per tonne.
Number of tonnes harvested per year
A greater number of tonnes harvested per cane cutter will increase total season and possibly weekly earnings for cane cutters, decreasing upward pressure on wages.
Whether cane is burnt or green
Green cane is more difficult and burnt cane easier to cut; more green cane puts upward pressure on the wage.
Whether cane cutters live in the community or a distant village
Cane cutters who live in the community, are growers or in a grower’s family, may already have their needs for accommodation and food met, and thus may not require as high an amount as cane cutters who have travelled a long distance from their community or village, who may require provision of accommodation and food payments and a goodwill sum.
Wage that could be earned for other similar work (farm labour)
This represents the opportunity cost of cane cutters’ time. It is low, so will keep the rate down.
Amount of non-cash earnings
Increased payment in-kind reduces upward pressure on cane cutters’ wage.
Inflation
Inflation will increase basic household expenses each year by about 5%, so will gradually increase the appropriate rate paid to cane cutters.
It may not be sensible to rigidly regulate the precise wage to be paid to all cane cutters because of key factors affecting the appropriate wage to be paid (mentioned in Table 3) vary greatly between growers. In areas with local scarcity of cane cutters, it is sometimes necessary to hire more cane cutters from distant villages and to pay them more. Where cane cutters have to travel from a different community, growers are often obliged to provide for the basic needs of cane cutters who do not live in the community; for instance, accommodation and additional food payments in cash or in kind. However, what growers are able to offer as payment (for instance, whether they have spare accommodation in which to house growers, and the quality of that accommodation), varies greatly. Moreover, the variety of ways in which payments are made to cane cutters, including in-kind payments, makes valuation of the total received by cane cutters particularly difficult. Finally, some cane cutters are only required to cut cane, whereas others are required to perform additional duties, particularly loading cane into trucks or trailers. Therefore, flexibility is recommended in regulating cane cutters’ wages. However, in recognition of the need to not exploit cane cutters and to guarantee them a minimum level of earnings, and in recognition of the point that some cane cutters are almost certainly paid effectively below the national minimum wage, it may be prudent to impose a minimum official MoGA rate paid per tonne. A grievance voiced by some growers was the ability of richer farmers to pay cane cutters more than poorer farmers within the same gang can afford, and therefore in a situation of labour shortage, to deprive poor farmers of the ability to get their cane cut and sent to mill.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Factor
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Growers within a gang recruit cane cutters from different places, and therefore different basic-needs payments and goodwill payments may be required. However, in situations of labour shortage, cane cutters may be able to bargain for goodwill payments that are, unfairly, well above the market average of 32.29 FJD. A problem with the incentive given by the goodwill payment is that, being before cane cutting begins, the payment is not made to cane cutters contingent on performance during the season, but in good faith that they will perform as promised. Growers raised the issue of reliability, with some cane cutters disappearing mid-season, and a large goodwill payment may possibly contribute to this issue. Thus it may be necessary to cap the maximum level of goodwill payment to which cane cutters are entitled, with any increase in their earnings coming from increased tonnage of cane cut and a guaranteed minimum amount of funds received per tonne.
Recommendations: • Cash payments to cane cutters recorded and equal between growers: The MoGA form should be modified so that gangs are required to declare the additional cash payments provided to cane cutters including amount per tonne and goodwill payment. Moreover, as far as it is possible to enforce, the total per-tonne amount to cane cutters should be required to be uniform between growers within the same gang. This should work to reduce competition between growers within a gang for the services of cane cutters and hence exploitation of poorer farmers by richer farmers. • Goodwill payment capped: The average goodwill payment for cane cutters at the start of a season is 32.29 FJD, but the highest paid among the sample of cane cutters was found to be 450 FJD. To protect growers from cane cutters who seek to exploit a situation of localised labour scarcity, it is recommended that a maximum limit on goodwill payments of 300 FJD, or an amount agreed by the sugar stakeholders especially the Sugar Cane Growers’ Council, should be imposed, increasing with inflation year on year. Should growers need to pay more than this to cane cutters due to labour scarcity, the additional money should be offered as a lump sum at the end of the season, conditional on tonnage cut and good cane cutter performance. • Mandatory provision of housing where needed: During harvesting season, provision of adequate accommodation, with electricity and water supply, is currently customary but should be mandatory for cane cutters who need housing, for instance because they are recruited from outside a cane-growing community. This contributes significantly towards provision of their basic needs.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
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• Minimum limit on total cash payment per tonne: To balance the need for grower profitability with the need to provide a reasonable wage to cane cutters above the national minimum wage, and provide a minimum guaranteed payment to cane cutters, a minimum limit should be imposed on the total of the official MoGA rate and the cash payment to cane cutters. This guaranteed minimum cash amount paid per tonne should be set at a level slightly below the estimated 2012 average of 13.07 FJD, (e.g. 12 or 12.50 FJD) that is agreed by the sugar industry stakeholders, with an exception made for family labour and labour sourced on-farm. This required minimum cash amount per tonne should increase with inflation year by year. It may also have to be adjusted by small amounts3 upwards for green cane and downwards for burnt cane, as burnt cane is much easier to cut. Apart from the goodwill payment, gangs should then be allowed to vary what they pay cane cutters over and above that amount, in cash and in kind, according to local conditions. • Focus on increased tonnage harvested: The most important way to increase cane cutters’ annual earnings is to increase the number of tonnes delivered to mill. This also benefits growers because cost per tonne of paying one cane cutter decreases slightly as the number of tonnes he cuts in a season increases. Therefore, two elements are important: efforts to increase cane production by growers so there are more tonnes to be harvested; and efficient mill operation to ensure that all available tonnes of cane can be harvested. Promotion of both aims will benefit both growers and cane cutters.
3 Placing too large a difference between the rate paid for cutting burnt cane and for green cane, gives a greater incentive for growers to burn their cane so they will be able to pay their cane cutters a significantly lower amount. No difference may lead to complaints by cane cutters about cutting green cane, or calls to growers to burn the cane, to make the cutters’ jobs easier. Making the difference just right will give the correct return to effort for cane cutters from both green and burnt cane, whilst not leaving growers with too large a financial incentive to burn their cane to cut harvesting costs.
3.2 Manual Harvesting: Sirdar As mentioned, the data in this section are from 100 MoGA forms collected by the author. The sample size is relatively small but still enlightening. The role of the Sirdar is to administer and oversee the harvesting process. One Sirdar is elected in each gang, season by season, but some Sirdars do the job for decades. The Sirdar rates were not collected from FSC but were gathered from MoGA forms found at Sugar Cane Growers’ Council offices. The distribution of rates paid to Sirdars per tonne is in Figure 6. It shows that rates per tonne vary between 0.40 and 2.10 FJD.
Figure 6: Sirdar rate per tonne harvested
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
This is informative on a per-tonne basis but is not informative for the total annual salary because tonnage of cane produced by each gang varies greatly. The following figure shows projected harvest season earnings for Sirdars in 2012; with a mean of 2,120.36 FJD (about 106.01 FJD per week for a 20-week season) and a median of 1,815.00 FJD (about 90.75 FJD per week). Four Sirdars are predicted to earn over 4,000 FJD and one Sirdar from Vanua Levu earns 11,337.01 FJD, driven by a high gang tonnage.
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Figure 7: Sirdar season earnings from harvesting
Unlike the situation with cane cutters, the listed total harvesting season earnings for Sirdars do not usually represent their total earnings, as they are also cane growers and will therefore receive income from their own farms. Moreover, the activities undertaken by a gang Sirdar, and the amount of time they spend on administration and in the field supervising, will vary greatly between gangs. Therefore, it is not possible to draw conclusions from these data from the perspective of either economic welfare or appropriate pay for the job. Consequently, it is recommended that the rate paid to Sirdars is not regulated, but is left to be decided within gangs of growers.
3.3 Manual Harvesting: Headman The role of the Headman is to coordinate and participate in the logistics of harvesting and loading cane on to rail carriages, and sometimes lorries. Not all gangs have a Headman — 55 out of a sample of 100 — and the precise activities of the Headman may vary between gangs. In a portable line gang using rail transport, the Headman may be called the Head Linesman. In a lorry gang there may be a Headman who oversees the cane cutters’ operation and helps load in the physical absence of the Sirdar. The sample distribution of rates paid to Headmen per tonne is in Figure 8. It shows that rates per tonne vary between as low as 0.03 FJD up to 2.31 FJD with a median rate of 0.60 FJD and a mean of 0.72 FJD.4
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
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4
The mean and median shown is that of the 55 gangs for whom there are data on the rate per tonne not the mean for the total sample of 100.
Figure 8: Headman rate per tonne harvested
This is informative on a per-tonne basis but is not informative for total harvest season earnings because tonnage of cane produced by each gang varies greatly. The following figure shows projected harvest season earnings for Headmen in 2012; with a mean5 of 1,817.44 FJD (about 90.87 FJD per week for a 20-week season) and a median of 1,436.63 FJD (about 71.83 FJD per week). Four Headmen are predicted to earn over 4,000 FJD and one Headman from Vanua Levu earns 11,337.01 FJD (from the same gang as the Sirdar mentioned above), driven by a high gang tonnage and a per-tonne rate of 1.47 FJD.
Figure 9: Headman season earnings from harvesting
As for Sirdars, the listed total harvesting season earnings for Headmen do not usually represent their total earnings as they are often also cane growers and will therefore receive income from their own farms. Moreover, Headmen’s duties may vary between gangs. Hence it is not possible to draw conclusions from these data from either an economic welfare or a skill-appropriate pay perspective.
5
The mean and median shown is that of the 46 gangs for whom there are data on season earnings (tonne rate * total season tonnage), not
the total sample mean.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Therefore, it is recommended that the rate paid to Headmen is not regulated, but is left to be decided within gangs of growers.
14
3.4 Manual Harvesting: Linesman Usually only portable line gangs use a Linesman, who is employed to load the freshly harvested sugar cane on to rail trucks to be delivered to mill by the FSC rail system. However, even in a portable line gang there may not be a Linesman, whose role may be taken by the Headman or other members of a gang’s harvesting team. The distribution of rates paid to Linesmen per tonne in the 40 gangs out of 100, that have Linesmen, is in Figure 10. It shows that rates per tonne vary between 0.03 and 2.63 FJD with a median rate of 0.82 FJD and a mean of 0.86 FJD.
Figure 10: Linesman rate per tonne harvested
This is informative on a per-tonne basis but is not indicative of total harvest season earnings because tonnage of cane produced by each gang varies greatly. The following figure shows projected harvest season earnings for Linesmen in 2012; with a mean6 of 2,157.82 FJD (about 107.89 FJD per week for a 20-week season) and a median of 1,520.00 FJD (about 76.00 FJD per week). Four Linesmen are predicted to earn over 4,000 FJD and one Linesman from Vanua Levu earns 11,337.01 FJD (from the same gang as the Sirdar and Headman mentioned above), driven by a high gang tonnage and a per-tonne rate of 1.47 FJD. Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
15
6
The mean and median shown is that of the 46 gangs for whom there are data on season earnings (tonne rate * total season tonnage), not
the total sample mean.
Figure 11: Linesman harvest season earnings
As with Sirdars and Headmen, the listed total harvesting season earnings for Linesmen do not usually represent their total earnings as they may also be cane growers and will therefore receive income from their own farms. Moreover, Linesmen’s duties may vary between gangs. Hence it is not possible to draw conclusions from these data from either an economic welfare or a fair pay perspective. Thus it is recommended that the rate paid to Headmen is not regulated, but is left to be decided within gangs of growers.
3.5 Manual Harvesting: Water Carrier The job of the Water Carrier is simply to keep the gang’s harvesting team replenished with water and refreshments, and possibly to help with other harvesting tasks. Fifty-two gangs out of the sample of 100 have a Water Carrier. The distribution of rates per tonne paid to Water Carriers are in Figure 12. It shows that rates per tonne vary between 0.05 and 2.31 FJD with a median rate of 0.74 FJD and a mean of 0.53 FJD.
This is informative on a per-tonne basis but is not indicative of total harvest season earnings because tonnage of cane produced by each gang varies greatly. The following figure shows projected harvest season earnings for Water Carriers in 2012; with a mean7 of 1,673.26 FJD (about 83.66 FJD per week for a 20-week season) and a more representative median of 1,150.00 FJD (about 57.50 FJD per week). Four Water Carriers are predicted to earn over 4,000 FJD and one Water Carrier earns 9,717.44 FJD (from the same gang as the Sirdar, Headman and Linesman mentioned above), driven by a high gang tonnage and a per-tonne rate of 1.26 FJD.
7
The mean and median shown is that of the 43 gangs for whom there are data on season earnings (tonne rate * total season tonnage), not
the total sample mean.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Figure 12: Water Carrier harvesting rate per tonne
16
Figure 13: Water Carrier harvest season earnings
As with Sirdars, Headmen and Linesmen, the listed total harvesting season earnings for Water Carriers may not usually represent their total earnings as they may also be cane growers and will therefore receive income from their own farms, although some Water Carriers’ sole income may be from farm labour. Moreover, Water Carriers’ duties may vary between gangs. Therefore, it is not possible to draw firm conclusions from these data from the perspective of poverty and welfare. It is thus recommended that the rate paid to Water Carriers is not regulated, but is left to be decided within gangs of growers.
3.6 Mechanical Harvesting Discussions were conducted with five cane harvester owners, but sample size was too small to put numerical values on cost of harvesting. However, some conclusions that could safely be drawn from these discussions follow: • Use of a mechanical harvester tends to be profitable in the following conditions: Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
17
o High volume of cane harvested in a given year o Cane harvested on flat land, without too many rocks or other obstacles o Cane harvested on land that is not waterlogged or flooded o Quality of cane farming is high. For instance, weeds are controlled, cane variety is good and cane is planted in sufficiently “dense” and regular formation. • Due to geography, mechanical harvesting may not be profitable in wide swathes of Fiji’s hillier and rockier sugar cane growing areas. If mechanical harvesting is promoted, it may be beneficial to first identify areas of the cane belt in which mechanical harvesting could be profitable, and also to identify harvester types or technologies that can better deal with rough terrain. • Economies of scale apply for harvesting: the cost of harvesting one extra tonne reduces as the total number of tonnes harvested annually increases. The number of tonnes of cane that mechanical harvesters need to harvest to break even, assuming that harvesting and transport rates are competitive with those for manual harvesting methods, was between 5,000 and 9,000 tonnes per year for the four harvesters for which there were data. • However, it is financially risky to own a mechanical harvester. Profit may be very high one year but losses may be great the next year; this depends on the volume of tonnes harvested which is greatly variable according to extreme weather, mill operation and farmer cane supply decisions.
• Therefore, either financial liquidity or a guarantee of a minimum number of tonnes to be harvested is required. The “free market” solution would be to provide financial liquidity. However, if there is a way for FSC to somehow guarantee risk-averse harvester owners a high minimum tonnage of cane to be harvested (for instance 12,000 tonnes or above depending on the make and model of harvester), without upsetting manual gangs (for instance if they are told by FSC that a mechanical harvester will harvest their cane this year, changing decades of habit), this may have an advantage. This advantage is cost reduction for growers and a potential increase in profit for harvester owners. If harvesters are processing a very high tonnage per year, cost per tonne will decrease and the cost saving could be passed on to growers in the form of low rates charged for harvesting that are below manual harvesting rates. This is a purely theoretical possibility but which may warrant more investigation. • Wages earned per day for harvester drivers (not owners, unless the owner also drives the machine) are significantly higher than for cane. This is not inappropriate given the skill level required to drive the machine and the higher productivity of the work: many more tonnes can be harvested in a day by a man driving a machine than by a cane cutter.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
18
4. Cost of transport of cane to mill This section focuses primarily on road transport to mill, in Section 4.1. For portable line gangs, discussed in Section 4.2, it is not possible to draw conclusions on cost per tonne of transport from field to railway line, due to insufficient data collected. Rail transport is discussed in Section 4.3 but is not the focus of this study.
4.1 Lorry and tractor transport to mill This subsection attempts to conduct analysis in three steps. Section 4.1.1 looks at the supply of cane vehicles compared with the actual number of trips to mill. In Section 4.1.2 an attempt is made to find, from the available data, what fees are being charged for road transport to mill, and an average is estimated that varies according to the number of kilometres to mill. In Section 4.1.3, an attempt is made to find from the data collected, the true cost of transport to mill, from the perspective of the farmer, and an average is estimated that varies according to the number of kilometres to mill. Section 4.1.4 attempts to outline a method for calculating an appropriate rate per tonne. In section 4.1.5, recommendations for upper limits on rates charged are estimated based on the information in 4.1.1 and 4.1.2. Sugar cane is transported predominantly by lorry to the Lautoka, Rarawai and Ba mills, but at Labasa mill a much larger proportion of cane is transported by tractor and trailer. FSC data on the price charged by lorry and tractor drivers to growers for every tonne transported to mill, did not distinguish between tractor and lorry charges, so this analysis has had to treat both the same.
4.1.1: Supply and demand
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
19
When considering whether to regulate the cost per tonne, it is worth examining whether the market structure is more competitive or contains a lot of local monopolies. In the former situation the number of vehicles is relatively high and farmers can bid down the price by using the cheapest vehicle. In the latter situation, vehicles are scarce and hence vehicle owners have bargaining power to charge a price of their choosing; a situation in which exploitation of growers is possible. In the former situation of vehicle abundance, there should be arguably little price regulation; however, in the latter situation of scarcity, price would generally be further above cost and there would be a stronger case for price regulation. Figure 14 gives a picture of the supply of cane belt vehicles relative to the demand at the mill level. The figure shows the number of trips made to mill in 2011 by the median vehicle and the vehicle at the 75th percentile, as well as the mean distance to mill. This can be viewed as a measure of the intensity of demand for transport vehicles compared with supply: the lower the number of vehicles available and the higher the demand for cane transport, the higher the median number of trips to mill will be.
Figure 14: Median and 3rd quartile of number of trips to mill, and mean distance to mill Adapted from 2011 data provided by FSC.
For Labasa mill the diagram shows that 50% of vehicles made 73 trips or less to mill in 2011, and 75% made 103 trips or less. Taking a comparison, at Penang 50% of vehicles made 111 trips or less, and 75% made 151 trips or less. The median number of trips is therefore 28 less at Labasa than at Penang, implying that vehicles are less scarce in Labasa than they are in Penang.
It can be concluded that: • although the CIRAD (2010) study rather vaguely notes a “monopolistic attitude” among “various harvest and transport providers” as a major challenge at field level, vehicles are not transporting the maximum number of tonnes of cane to mill that they could. This reduces the likelihood of a general shortage of cartage vehicles in the Fiji sugar industry, although there are likely to be localised vehicle shortages and monopolies especially in remote cane farms • it is plausible that many, or most, vehicle drivers are not in a position to charge extortionate or monopoly prices that are a long way above cost • Labasa and Lautoka are most abundant in vehicles to transport to mill, whereas the risk of vehicle shortage and therefore any overcharging of growers by vehicle owners, may be greatest in Penang and Rarawai. Having conducted this market overview of existing charges and of supply and demand, transport is presented next.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Moreover, the estimated mean grower distance to the mill is 3 km further for Penang, so not only is the average truck doing more than 28 trips per year in Penang than Labasa, it is also driving six more kilometres per trip. Rarawai also has a high median number of trips at 102, but also has the shortest mean grower distance to mill, at 16 km, so the median vehicle driver makes a trip that is 8 km shorter than the next shortest mill, Labasa. Lautoka has the longest mean distance to mill at 25 km, with a median number of trips of 90.
20
4.1.2: The correlation between transport charges and distance to mill The following figure shows the relationship between the price growers are charged per tonne and the distance of the grower from the mill. As would be expected the line of best fit shows there is a strong positive relationship between distance from the mill and the charge per tonne8. However, there is also variation around the trend with some growers being charged prices that are unusually high or low given the number of kilometres.
Figure 15: Lorry and tractor transport – charge per tonne and distance of grower from mill
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
21
The distance of each gang from the nearest mill was sourced from Sugar Industry Tribunal data, and dollars charged per tonne are 2011 prices expressed in 2012 FJD.
8
The line of best fit is calculated using Ordinary Least Squares. R2 is 0.603, showing a strong relationship.
4.1.3: Calculating cost of vehicle transport per tonne A price charged by vehicle owners per tonne that is considered to be “fair� to growers9 is one that is as low as possible, adequately covering the vehicle owners’ vehicle costs and labour time, and a small return, without giving them an extortionate profit. An appropriate price could be considered to be one that is not too far above the cost of operation. Therefore, it is important to calculate the true running costs for vehicle owners. Data have not been recorded on vehicle running costs by FSC; therefore, a survey was made for 10 tractor drivers and 11 lorry drivers. Generally costs of purchase, maintenance, tax and insurance were found to be slightly cheaper per tonne for a tractor than for a lorry, but a lorry became cheaper to run over a longer distance. Unsurprisingly, the tractors tended to be used over shorter distances to mill. The overall effect is that costs per tonne are very similar for tractors and lorries at the average distance to mill of 22 km. Given that the sugar cane harvesting season lasts up to six months, tractors and lorries may be used for other purposes. From discussions with vehicle owners it was clear that, particularly for lorries, the majority of usage was for transporting sugar cane, with some vehicles without tax or insurance and therefore off the road outside of the harvesting season. Therefore, it is assumed that 80% of the total annual vehicle running costs (except for fuel and labour time) can be attributed to sugar cane production. For the purpose of this analysis, the following definitions are used: Annual fixed cost: cost that is incurred annually and is assumed not to vary given the number of kilometres travelled to mill. Trip fixed cost: the immediate fixed cost per trip. In this case, the fixed cost is the labour time spent waiting at the mill, which does not vary given the number of kilometres travelled to mill. Total fixed cost per trip: the annual fixed cost divided by the number of trips + the trip fixed cost. Trip variable cost: the costs incurred during a trip that vary according to the number of kilometres travelled to mill. Table 4: Costs that vary (variable) and do not vary (fixed) with the number of kilometres
Trip variable costs Fuel Labour time spent driving
Cost of transport per trip = total fixed cost per trip + total variable cost per trip. As mentioned, the total variable cost per trip varies with the number of kilometres to mill, and varies in a linear fashion. That is, as distance to mill doubles, so does the cost of fuel and the value of time spent driving. Therefore, this formula can be expressed in the form of y = mx + c, where y is average cost of transport per tonne, x is the number of kilometres, m is the variable cost per tonne and c is the fixed cost per tonne that does not change given the number of kilometres driven. The average cost of transport per tonne is then calculated:
=
9
And also economically efficient according to traditional principles of welfare economics
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Annual fixed costs Trip fixed cost Insurance Labour time spent waiting at mill Road Levy, Wheel Tax, Ramp Fees Purchase cost (total cost divided by life span in years) Maintenance1 The total trip cost is calculated as follows:
22
Putting the costs listed in the table above, into this format, and dividing by the results in the following formula:
The costs that are not in italics have been calculated from the data. Therefore, it is only necessary to vary the number of kilometres in order to calculate the average cost of taking one tonne to mill. Observed costs: The following table lays out the costs observed in the sample of 10 tractors and 11 lorries. Table 5: Summary of costs of running a tractor-trailer and a lorry 80% Purchase cost/lifespan All costs expressed in FJD 80% Insurance 80% Maintenance 80% Wheel tax 80% Road levy Total Annual fixed costs Tractor 72.00 2,345.14 277.20 630.00 1,087.09 4,411.43 Annual fixed costs - Lorry 188.36 2,513.10 453.20 810.00 1,640.09 5,604.76 Fixed costs above Value of labour divided by average time spent waiting number of trips at mill Per trip Fixed costs per trip Tractor 50.62 19.28 69.90 Fixed costs per trip - Lorry 56.53 19.28 75.80 Fuel cost/km Variable costs per km Tractor Variable costs per km Lorry
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
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Labour cost/km
Total
1.29
0.65
1.94
0.84
0.32
1.16
The table shows that the average cost of running a tractor was 4,411.43 FJD per year, compared with an average cost of running a lorry of 5,604.76 FJD. However, tractors cost more per kilometre than lorries, at 1.94 FJD compared with the lorries’ lower charge of 1.16 FJD per kilometre. Inserting the data in the above table into the formula for average cost per tonne outlined in the previous section, makes it possible to come up with an explicit formula in the y = mx + c format. This formula is as follows for a tractor: Average cost per tonne = 0.18 x number of kilometres + 6.66 and for a lorry: Average cost per tonne = 0.10 x number of kilometres + 6.78. Putting these together to create an estimated generic cost per tonne of transport, in the interest of parsimony10, the following line represents the average cost of transport per tonne: Average cost per tonne = 0.14 x number of kilometres +6.72 The relationship between the estimated average cost per tonne and the distance to mill is shown in Figure 17, juxtaposed on top of the average charge per tonne for that distance as isrepresented in Figure 15 above. Also, as the data on the amount charged to each grower per tonne are not available for tractors and lorries separately, we cannot compare the tractor costs to the tractor charges and the lorry costs to the lorry charges; we can only compare all vehicle charges to all vehicle costs, which 10
is a useful comparison to make; moreover, lorry and tractor costs are not radically dissimilar.
Figure 16: Lorry and tractor transport – actual charge per tonne, average charge per tonne, average cost per tonne
The red line represents the average cost per tonne, and the green line represents the average charge per tonne in 2011. Figure 16 shows that the average charge per tonne marginally exceeds the average cost per tonne at most distances to mill. There are some exceptions but most vehicle owners were not making an extortionate profit from transporting cane to mill in 2011. 4.1.4. Calculating an appropriate price of vehicle transport per tonne
The markup factor is defined as 1 plus the percentage markup that is considered appropriate in the industry. For example, if it is decided that a small markup of 10% is appropriate, the markup factor is set to 1.1, and thus multiplying the average cost per tonne adds 10% additional revenue on top for growers to pay to vehicle owners. For the example below the markup is set to 10%, which is fairly low, reflecting the fairly competitive (involving many sellers and buyers, rather than oligopolistic, involving few sellers) market structure of transport vehicles to mill as well as the need to minimise the cost to sugar cane growers. Given that the average cost per tonne and the number of kilometres driven are calculated in 2012 prices, in future years it will be necessary to adjust the appropriate charge per tonne upwards according to inflation. The 2012 Fiji national Consumer Price Index (CPI) is 118.711, and thus the inflation factor will be the current year CPI divided by the CPI for 2012, which is 118.7. 11 From the Fiji Bureau of Statistics website, with a base of 100 in 2008, and the 2012 CPI is estimated on the basis of trend inflation during the previous five years.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Beyond the cost of vehicle transport, the appropriate price per tonne to charge to growers will depend on the appropriate level of markup, given the circumstances, on inflation and on fuel costs. These factors will be reflected in a markup factor, and an inflation factor, that simply multiply the calculated industry average cost per tonne. Fuel costs will input directly into the calculation as follows:
24
Inputting the values for the markup, scarcity and inflation factors suggested above, we have a final formula for appropriate charges:
Inputting the explicit formula for average cost of road transport per tonne given in the previous section, given the number per kilometre to mill, and assuming it is 2012, we have a formula for appropriate charges in 2012:
This relationship between estimated appropriate charge per tonne and distance to mill is shown in the blue line in Figure 17; the other lines in the chart are identical to those in Figure 16. The general form of this formula is as follows. This is the final formula for what may be considered a mid-range appropriate charge per tonne:
The figure of variable costs per kilometre of 0.14 FJD will have to be adjusted each year according to the price of fuel that year, as follows:
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
25
Figure 17: Estimated appropriate charge per tonne
The appropriate wage per hour for a driver is calculated to be the average rural wage per hour, which is 2.50 FJD per hour. Therefore, the variable cost per tonne per kilometre is as follows:
It is not recommended that the estimated appropriate charge per tonne is set as an upper limit because different vehicles have different running costs, and particularly poor roads may necessitate higher maintenance costs. If an upper limit on charge per tonne is imposed that is too low, the supply of vehicles available may fall with the consequence that less cane will be delivered to mill. Therefore, if an upper limit is imposed, it should be high enough to reasonably incorporate vehicle costs that are higher than average. 4.1.5 Calculating an appropriate upper limit for the price of vehicle transport per tonne The markup for an appropriate upper limit will be high enough to incorporate greater-than-average vehicle costs plus a small markup. Therefore, instead of a markup of 10% as specified above, a higher markup could be used such as 30%. The markup factor would therefore become 1.3. The formula for maximum upper limit to be charged per tonne would become the following:
Adding an upper limit line (orange) to Figure 17, it is possible to see in Figure 18 below that most growers are charged under the limit, but a few are being overcharged.
In the sample of 207 growers, 25 are overcharging growers for transport per tonne given the number of kilometres to mill. Table 6 below shows the full table of appropriate and upper limit charges per tonne given distance to mill.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Figure 18: Proposed upper charge limit
26
Table 6: Estimated appropriate charges and upper limit charges per tonne given distance to mill. All figures are in 2012 FJD.
Distance from farm to mill (km)
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
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0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39
Average cost per Average charge per tonne tonne in 2011 6.72 6.86 7.01 7.15 7.29 7.43 7.58 7.72 7.86 8.00 8.15 8.29 8.43 8.57 8.72 8.86 9.00 9.15 9.29 9.43 9.57 9.72 9.86 10.00 10.14 10.29 10.43 10.57 10.71 10.86 11.00 11.14 11.28 11.43 11.57 11.71 11.85 12.00 12.14 12.28
6.67 6.85 7.03 7.21 7.39 7.57 7.75 7.93 8.11 8.29 8.47 8.65 8.83 9.01 9.19 9.37 9.55 9.73 9.91 10.08 10.26 10.44 10.62 10.80 10.98 11.16 11.34 11.52 11.70 11.88 12.06 12.24 12.42 12.60 12.78 12.96 13.14 13.32 13.50 13.67
Proposed appropriate Proposed upper limit charge per tonne (not on charge per tonne enforced) 7.39 7.55 7.71 7.86 8.02 8.18 8.33 8.49 8.65 8.80 8.96 9.12 9.28 9.43 9.59 9.75 9.90 10.06 10.22 10.37 10.53 10.69 10.84 11.00 11.16 11.31 11.47 11.63 11.78 11.94 12.10 12.26 12.41 12.57 12.73 12.88 13.04 13.20 13.35 13.51
8.74 8.92 9.11 9.29 9.48 9.66 9.85 10.03 10.22 10.41 10.59 10.78 10.96 11.15 11.33 11.52 11.70 11.89 12.07 12.26 12.44 12.63 12.82 13.00 13.19 13.37 13.56 13.74 13.93 14.11 14.30 14.48 14.67 14.85 15.04 15.23 15.41 15.60 15.78 15.97
12.42 12.57 12.71 12.85 12.99 13.14 13.28 13.42 13.57 13.71 13.85 13.99 14.14 14.28 14.42 14.56 14.71 14.85 14.99 15.13 15.28 15.42 15.56 15.70 15.85 15.99 16.13 16.27 16.42 16.56 16.70
13.85 14.03 14.21 14.39 14.57 14.75 14.93 15.11 15.29 15.47 15.65 15.83 16.01 16.19 16.37 16.55 16.73 16.91 17.09 17.26 17.44 17.62 17.80 17.98 18.16 18.34 18.52 18.70 18.88 19.06 19.24
13.67 13.82 13.98 14.14 14.29 14.45 14.61 14.77 14.92 15.08 15.24 15.39 15.55 15.71 15.86 16.02 16.18 16.33 16.49 16.65 16.80 16.96 17.12 17.27 17.43 17.59 17.75 17.90 18.06 18.22 18.37
16.15 16.34 16.52 16.71 16.89 17.08 17.26 17.45 17.63 17.82 18.01 18.19 18.38 18.56 18.75 18.93 19.12 19.30 19.49 19.67 19.86 20.04 20.23 20.42 20.60 20.79 20.97 21.16 21.34 21.53 21.71
4.2 Tractor transport to railway in-field Cane is loaded on to rail trucks, on portable lines laid in the cane field, and the trucks are pulled on to rails on winch trailers that are hauled by tractors. Insufficient data were collected to establish a plausible average of the cost of collection and transport from the field to the railway line using a tractor and winch trailer. The distance from the field to the line can be from less than 100 metres up to five kilometres. However, gangs using rail transport are less likely to have profitability issues due to the cheaper cost of transporting to a nearby line compared with transport all the way to mill by truck or tractor. One approximation for transport cost per tonne may be the cost of road transport listed in the table above, where the “kilometres� column represents the distance from the field to the railway line pick-up point; however, costs per tonne are likely to be much higher due to two factors. First, tractors that move cane to the line are operating almost entirely off tar-sealed roads, which may increase maintenance costs per kilometre. Second, cane is placed on to a railway truck which is then pulled on to a winch-trailer and towed by the tractor to the line; and in this arrangement the tractor tows less cane per load (3.2 tonnes according to LCPA, pers. comm.) than if it were simply towing a trailer full of cane, because a rail truck holds much less than the 10 tonne average of cane held by an average tractor-trailer. So the low cost to the farmer of this whole method comes from the short distance to the line.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70
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In spite of these reflections, due to insufficient data, recommendations on regulation of cost of tractor transport cannot be made at this time.
4.3 Rail transport It was beyond SPC time and budget constraints for this study to look at the cost per kilometre of rail transport to mill, both currently and if the number of tonnes transported by rail increases. However, this is an economically significant question for the sugar industry. Therefore, to answer the questions of “How much would it cost?” and “Can it be done?”, it is recommended that a cost study is undertaken in parallel with, or after, an institutional feasibility study. The economic study would find how much rail transport currently costs per tonne, and how much it may cost given an expansion in sustainable rail use, assuming maintenance is taken into account. The study would also examine the financial implications both for FSC through an increase in revenue, and the possible magnitude of economic impact for the farmers through reduced costs. The institutional feasibility study would look from a management perspective at the strengths and constraints that FSC may face in coordinating and expanding the rail system. One key issue may be to convert lorry gangs back to portable line gangs, and ensure they have the tractors and winch trailers needed to transport cane to the line. The feasibility study would then make recommendations to FSC, should the move to expand the rail system be sufficiently feasible and beneficial. The reasons for conducting the studies are: Effect of rail deterioration: As the rail system has deteriorated from a maintenance perspective, and a lower proportion of cane has been delivered to mill by road, the effect has been twofold. First, the cost of transport of cane has been passed from FSC, who pays for the rail system, to the grower, who pays for road transport. Second, the industry average cost of transport per tonne may have increased overall because cost per kilometre of road transport is probably higher than cost per kilometre of rail transport. Cost of rail transport may be lower: In terms of the cost of transporting cane per tonne, to estimate the cost structure, the fixed cost of maintaining and coordinating an entire rail system may be high, but as the number of tonnes transported increases, the cost of transport per tonne may continue to decrease dramatically. One lorry transports about 10 tonnes on average; whereas one rail locomotive pulls approximately 60 trucks each of which carries 2.8 tonnes of cane on average12, and thus one single locomotive pulls an average of about 168 tonnes of cane to mill (LCPA, pers. comm.) and up to 300 tonnes (CIRAD, 2010). Therefore, from a “variable cost” perspective — in other words, fuel and truck maintenance costs — just one locomotive and 70 carriages are likely to be much cheaper to run per tonne of cane than the 17 trucks (or tractors and trailers) that would be required to carry 168 tonnes. Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
29
Industry’s economic efficiency: As a consequence of the low variable costs of rail transport just alluded to, an expansion of the rail system, if cost-efficient, could possibly make the entire industry more economically efficient by decreasing whole-of-industry cost of transport. An optimal situation would be one in which total industry transport costs are minimised, whether they are incurred by FSC or by the grower. However, it is impossible to know if this is the case unless a study is conducted to find the magnitude of costs of the rail industry. FSC financial sustainability: Growers could potentially benefit financially from a re-expansion of the rail system. FSC may also benefit, but as an expansion of the rail system would transfer transport costs back to FSC (and increase FSC revenue through increased cane supply) it is necessary to be sure that this is financially sustainable from the FSC perspective.
12
According to FSC the average for the six years 2007–2012 is 2.76 tonnes per truck.
5 Conclusion and Recommendations This section summarises the main recommendations made by this study. Manual Harvesting: Cane cutters • To aid future analysis, MoGA forms should be modified so that gangs are required to declare the additional cash payments provided to cane cutters including amount per tonne “from the farmer’s pocket” and goodwill payments. Moreover, the total per tonne amount paid to any particular cane cutter should be required to be uniform between growers within the same gang. • To avoid overt exploitation of growers by cane cutters in a situation of labour scarcity, a maximum limit on goodwill payments of 300 FJD in 2013, or other amount deemed appropriate by the Fiji sugar industry stakeholders, should be imposed, increasing with inflation year on year. Any additional “goodwill payments” necessary to retain cane cutters could be offered as a lump sum at the end of the season, conditional on performance. • Cane cutters are not well paid and the labour is physically demanding. During harvesting season, provision of adequate accommodation should be mandatory for cane cutters who need it, for instance because they are recruited from outside a cane-growing community and have travelled a distance. This contributes significantly towards provision of their basic needs. • To take into account the necessity to provide for basic needs for cane cutters, a guaranteed minimum cash amount paid per tonne — through the total of the MoGA and the cash amount paid per tonne “from the farmer’s pocket”— should be set at a level slightly below the estimated 2012 average of 13.07 FJD, (e.g. 12 or 12.50 FJD) that is agreed by the sugar industry stakeholders, with an exception made for family labour and labour sourced on-farm. Apart from the goodwill payment, growers should then be allowed to vary what they pay cane cutters over and above that amount, in cash and in kind, according to local market conditions of supply and demand. • The most important way to boost cane farmers’ profitability, as well as cane cutters’ annual salary, is to increase the number of tonnes cane cutters can harvest in a season delivered to mill. Manual Harvesting: Sirdar, Headman, Linesman, Water Carrier
• The most important way to increase the annual salary of Sirdars, Headmen, Linesmen and Water Carriers, as well as cane farmer profitability, is to increase the number of tonnes harvested and delivered to mill.
Mechanical Harvesting • As harvester ownership is risky and profits vary year on year depending on the number of tonnes harvested, the Sugar Industry Tribunal or FSC could look into the feasibility and financial viability of contracting with cane harvesters to guarantee they are able to harvest a certain minimum number of tonnes which is well above the break-even point of 5,000 to 9,000 tonnes. This could reduce risk for harvester owners by giving them a guaranteed minimum amount of profit, and could reduce costs for cane growers if the Sugar Industry Tribunal or FSC can ensure that cost savings are passed on to growers. • For any given harvester, the greater the volume of cane harvested, the cheaper the cost of harvesting. Use of a mechanical harvester tends to be profitable in the following conditions: o High volume of cane harvested in a given year o Cane harvested on flat land, without too many rocks or other obstacles
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
• The Sirdar, Headman, Linesman and Water Carrier rates received per tonne should not be regulated, because their precise roles, responsibilities and other incomes greatly vary between gangs, and regulation may have bad unintended consequences such as exacerbation of labour shortage. Moreover, these positions within gangs are composed of growers who have every interest in being profitable, so they are unlikely to set their rates so high that profitability is put at risk.
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o Cane harvested on land that is not waterlogged or flooded o Quality of cane farming is high — for instance weeds are controlled, cane variety is good and cane is planted in sufficiently “dense” and regular formation. Road Transport • A maximum charge per tonne is imposed based on the number of kilometres to mill, based on Table 6 and the formula behind it identified in Section 4.1.4. A spreadsheet will be provided to sugar industry stakeholders based on this formula. • The maximum charges per tonne should be updated every year based on inflation, the rural wage and the cost of fuel. Rail Transport • An economic cost benefit analysis study could be conducted on the degree to which rail expansion would affect transport costs in the industry. The study should also specify the magnitude and distribution of costs and benefits between FSC and the growers, and under what conditions such an expansion would be financially sustainable for FSC.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
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Bibliography and Data Sources Davies, J. 1998. The causes and consequences of cane burning in Fiji’s sugar belt. The Journal of Pacific Studies, Volume 22, 1998, 1–25. School of Social and Economic Development, Editorial Board (USP). European Commission, 2010. Technical Assistance for Improving Harvest and Transport Conditions for the Fiji Sugar Industry, Final Report. European Aid Co-Operations Office. Commissioned by European Commission and written by Centre de Cooperation International en Recherche Agronomique pour le Developpement (CIRAD). Unpublished. Fiji Bureau of Statistics, 2014. Consumer Price Index data. Available at http://www.statsfiji.gov.fj/index.php/ economic/4-economic-statistics/cpi/104-summary-of-consumer-price-index12 Accessed on 27th March 2014. Fiji Sugar Corporation, 2012. Data on cartage costs to mill in 2011. Unpublished. Secretariat of the Pacific Community (SPC), 2012. Fairtrade certification of sugar cane in Vanua Levu, Fiji: an economic assessment. Secretariat of the Pacific Community, Suva, Fiji. SPC, 2012. Records of interviews with 53 cane growers, cane cutters and drivers in the Fiji sugar industry. Unpublished. Sugar Cane Growers’ Council, 2012. 100 Memorandum of Gang Agreements. Unpublished. Sugar Industry Tribunal, 2008. Data on distance of Gangs to the nearest mill. Unpublished. Wadan, N. 2010. Preliminary report : poverty and household incomes in Fiji in 2008–09 / Wadan Narsey, Toga Raikoti, Epeli Waqavonovono. – Suva, Fiji : Fiji Islands Bureau of Statistics. ISBN 978-982-510-014-0.
Cost of Harvesting and Transport in the Fiji Sugar Industry: An Economic Assessment
Maintenance costs were treated as fixed because for the sample of 21 vehicles no correlation (positive or negative) was found between maintenance cost and distance driven to mill, and therefore a figure could not be calculated indicating the increase in maintenance costs caused by driving 1 km. The relationship between distance to mill and cost of fuel and labour time were easier to observe and calculate.
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