Kasinthula Cane Growers Limited

Clearly, KCGL’s biggest challenge is determining how to best manage its debt, and this challenge overshadows all of the company’s other goals. “We would like to increase the number of farm families and make sure that the home cash for members is increased,” laments Brian, “but this can only be achieved if the original loans KCGL obtained are dealt with.” All of the affected parties—the government, the Trust, KCGL, and Illovo—are trying to find a permanent solution to the debt problem. Current projections are that all of the loans can be paid off by 2014-2016.

Even if the debt problem is taken care of, other challenges remain:

• Mounting Production Costs: Rising production costs have shrunk farmers’ margins. KCGL farmers are trying to address this by cutting their labor overhead and limiting the number of extra workers they bring on. That means that KCGL farmers are now doing more of the production work themselves.
  
  
• Building a Sophisticated Business: There are doubtless other ways KCGL farmers can increase their productivity, but Brian remains concerned that the farmers do not have enough business skills or acumen: “Many from the rural areas think that all the money generated by the company is profit, without understanding the costs that need to be covered— hauling, processing, machinery, and repairs.”
  
  
• Changing Market: The international market for sugar is exceptionally volatile. One consequence is that international subsidies are constantly being readjusted. For instance, at the request of the World Trade Organization, the EU recently eliminated sugar subsidies. By 2012 Malawi will no longer sell its sugar to the EU under preferential terms, so the price of sugar is predicted to fall nearly 30%. This will significantly impact KCGL’s bottom line.
  
  
• Selling Directly: All KCGL sugar reaches the international market through Illovo. While another exporter could be useful, in this case, it is complicated since Illovo is also is the guarantor of the farmers’ debt. Until KCGL pays off its debt it will be unable to sell to profitable markets directly. But when it does, an agreement may be reached for Illovo to process the sugar with KCGL taking on more of the marketing function.
  

If KCGL does overcome its debt problems, it will represent an intriguing business model for other countries dependent on export of one food commodity. That it has turned around such a messy industry—with horrible, often unimaginable working conditions and with so many farmers in deep poverty—suggests that a modified cooperative model might be applicable elsewhere.

Through Trust ownership of their company, KCGL farmers pool their efforts, purchase shared irrigation equipment and tractors, and access operating credit from commercial banks that wouldn’t be available if they sought loans independently. And Trust ownership empowers members to have a voice in how the business operates at every link in the value chain.

Becoming fair trade certified and upholding the responsibilities required to maintain that certification have also given KCGL access to wider markets—and its farmers access to more opportunities.