Project Financing Case: “Nghe An Tate & Lyle Sugar Company (Viet Nam)”

SESSION 4: PROJECT FINANCING

Case: "Nghe An Tate & Lyle Sugar Company (Viet Nam)"

_Question 3: 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 are high. From Exhibit 9 with nominal cash flow of a crop life cycle ( 4 years), the total return 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 average economics per year from exhibit 10 as below:

Unit: Dong per hectare

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

3,853,500

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

-52,500

Return per year

1,725

1,667

-1,155

-232

-2,000

400

-125

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 cash flows 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 $1.00/day: NPV Cane +21,599; NPV pineapple +3,865; NPV coffee -9,998; NPV rubber -20,664, NPV combo A -12,777; NPV combo B +2,555, NPV combo C -799 (US$ in thousands).

- Other benefits: One of three parts of