Natl - the Cane Farmers

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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 other benefits. - Economic return: Net returns to farmers per Hectare from growing Sugar cane is high. From Exhibit 9 with norminal cash flow of a crop life cycle ( 4 years), the total rerurn of one hectare is 6,900 (000’VND) and net present value is 3,841 (000’VND) with nominal discount rate 13.3%/year. Compare to coffee and rubber, sugar cane need only one year to revenue. Compare with other crops ( pineapple, coffee, rubber …), Sugar cane can get highest economics from exhibit 10 as below: Unit: Dong per hecta

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Sugar |Pineapple |Coffee |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 |315 |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 |5.021,100 |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 $1.00/day: NPV Cane +82,894; NPV pineapple +19,617; NPV coffee +2,438; NPV rubber -13,557, NPV combo A -34,515; NPV combo B +6,902, NPV combo C -2,158 (US$ in thousand). - Other benefits: One of three parts of NATL’s development plan is an outreach program to help local farmers...
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