During the week, we had a meeting with Mackay Sugar’s (MSL) CFO Peter Gill to discuss primarily the introduction of the Sugar Industry Amendment Bill
Background
In mid-2014 foreign owned millers Wilmar, MSF Sugar and Tully Sugar provided formal notice that they intend to withdraw from the not for profit, industry owner Queensland Sugar Limited (QSL) marketing system at the end of their current Raw Sugar Supply Agreements in July 2017. These companies sought to benefit by marketing the sugar through their own sugar trading companies.
The move would result in the majority of Queensland’s export sugar crop being diverted from QSL's system into the millers’ own marketing systems and sparked considerable industry debate about future marketing arrangements.
On 3 December 2015, The Sugar Industry (Real Choice in Marketing) Amendment Bill 2015 passed Queensland Parliament. The legislation:
- Enables growers to choose who markets their sugar (‘grower economic interest (GEI) sugar’)
- Provides for non-discrimination between growers, regardless of who they choose as the marketer of GEI sugar
- Provides for a pre contractual dispute resolution process, including arbitration to deal with deadlocks
Impact for Mackay Sugar
The amended Bill will primarily impact Wilmar, MSF Sugar and Tully Sugar’s plans to trade sugar through their own marketing systems. Growers can now, without discrimination, choose who markets their GEI sugar.
Regardless, the will be no financial impact for MSL if its growers want to use a different marketing entity other than the incumbent QSL. MSL will simply deliver the product to whoever a grower may choose with growers taking the risk of non-payment, poor performance or other issue of the marketer or their product.
We note however that QSL is a not for profit entity and is industry owned by millers and canegrower. Further, MSL itself is owned by the approximately 900 sugar cane growers who provide the raw product to MSL’s mills. Therefore the MSL’s canegrowers, MSL and marketer QSL have largely aligned interests by design and therefore it is unlikely many, if any growers would use the amendment to opt out of QSL.
MSL, Bundaberg Sugar and Isis Central Sugar Mill remain with QSL and in December 2015, rolled over their Raw Sugar Supply Agreements with the marketer, extending their current contracts until 30 June 2019. Currently all growers are on the same contract with MSL with the same terms and conditions. It is therefore business as usual for MSL and we see no financial impact. If some growers do however seek to negotiate individual terms or select a different marketer this will simply be an administrative change.