Natl – the Cane Farmers

Case Nghe An Tate & Lyle Sugar Company (Viet Nam) Question Are farmers likely to convert to sugar cane ? The farmers who lived within 50 kilometers of the sugar mill are likely to convert to sugar cane in term of economic return and another(prenominal) benefits. Economic return profits returns to farmers per Hectare from growing Sugar cane is high. From Exhibit 9 with norminal cash flow of a influence life cycle ( 4 geezerhood), the total rerurn of one hectare is 6,900 (000VND) and force out present value is 3,841 (000VND) with nominal discount rate 13. 3%/year.Compare to hot chocolate and rubber, sugar cane need only one year to revenue. Compare with other crops ( pineapple, coffee, rubber ), Sugar cane can compress highest economics from exhibit 10 as below Unit Dong per hecta Sugar Pineapple deep brown Rubber Peanuts Peanuts Peanuts cane and Maize & peanuts and Rices Number of years 420 420 420 420 420 420 420 Planting years 105 140 168 120 0 0 0 Typical years 3 15 280 252 300 420 420 420 Revenue 2,835,000 3,955,000 4,536,000 3,000,000 2,856,000 4,032,000 4,080,300 Total Costs 2,110,500 3,255,000 5. 21,100 3,097,500 3,696,000 3,864,000 3,906,000 Total net return 724,500 700,000 -485,100 -97,500 -840,000 168,000 174,300 Return per year 1,725 1,667 -1,155 -232 -2,000 400 415 Note 420 is lowest common multiple of crop life cycle (4,3,10,28) and assume that time value of money is ignored (no discount to present value). From exhibit 11, Net return from Cane also get highest net present value for period from 1998 to 2015 with nominal discount rate 13,3% per annum and opportunity cost of labor is $1. 0/day NPV Cane +82,894 NPV pineapple +19,617 NPV coffee +2,438 NPV rubber -13,557, NPV combo A -34,515 NPV combo B +6,902, NPV combo C -2,158 (US$ in thousand). Other benefits One of three parts of NATLs development visualise is an outreach program to help topical anesthetic farmers to convert to cane yield which means that their sugar cane w ill have more added value because cane production can sell with higher price and the farmers can use their products. The company expected to employ 725 people, provided n-house traning so many members of the farmer family can be become workers, educated ones can also become staffs. This will creat many good affects to the local farmers. The project would need roughly 300 lorries during the harvest season so some farmers can borrow money from local banks to buy new hauliers to transport cane to the factory. With many benefits as above, before converting to sugar cane the local farmers need to understand/know the risks of converting. The prototypic risk is to avoid converting too more from the beginning of the project. The factory will reach full capacity by the 2002/2003 harvesting season, so for the period from 1998 to 2002, the numbers of hactares convert to cane need to increase arcordingly. Second risk is related to the NATLs complex payment system, with the first installment , approximately 75% of the total, would be made within 14 days of delivery and the rest would be made at the end of the season with revision for sugar content and market price.The local farmers seem to familiar with simple full payment upon delivery even though with lower price, many pitiful farmers can have enough cash for their daily life and no effected by adjustment with the old payment method. With these analysises, the famers will have much more benefits, some related risks can be considered and controlled so I believe that they will convert to sugar cane.