This was a major factor contributing to a 21 per cent decline in the sucrose price between 2002 and 2005. With smallholder farmers responsible for investment in on-farm capital equipment including irrigation systems, the decline in the sucrose price has had profound effects on their financial viability. This is further compounded by the high interest rates charged on their finance.
Currently, newly established smallholder sugar farmers pay some 31 per cent of total earnings in interest for both seasonal and capital loans. In many cases, this leaves insufficient funds to cover even the repayment of the seasonal loan. This is contributing to growing levels of indebtedness amongst smallholder sugar farmers.
This is proving a direct challenge to the operation of farmer associations as this leaves no income for distribution to members. Some of the farmers are finding their own solutions to the income needs of their families and such activities have led to a deterioration in the efficiency of smallholder sugar production.
Reversing declining efficiency
It is essential that this downward cycle of declining efficiency be halted and reversed, before the financial effects of EU sugar sector reform are felt through the wider economy in Swaziland. Without such reversal and support, newly established smallholder sugar farms will become financially non-viable. The key to reversing this downward cycle is the financial restructuring of smallholder loans, and concerted efforts to improve efficiency.
Financial restructuring of existing loans is essential, since without it smallholder farmers will see no personal benefit from the implementation of measures to improve yields, increase sucrose content and reduce seasonal costs. Put simply, under current circumstances the benefits of any improvements in production efficiency are not realised as the beneficiaries of such are the owners of the capital they have borrowed. The argument goes thus, “why improve when the one to benefit from such will be the bank, not me?”. Also, the average operating costs in the smallholder sugar sector increase 40 per cent since 2002.