Nghe An Tate & Lyle Sugar Company (Viet Nam) Essay
Nghe An Tate & Lyle Sugar Company (Viet Nam)
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 NATL’s development plan is an outreach program to help local farmers to convert to cane production which means that their sugar cane will have more added values because cane production can sell with higher price and the farmers can use their products.
The company expected to employ 725 people, provided in-house training so many members of the farmer family can become workers, educated ones can also become staffs. This will create 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 haulers 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 first risk is to avoid converting too much 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 hectares convert to cane need to increase accordingly.
Second risk is related to the NATL’s 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 adjustment for sugar content and market price. The local farmers seem too familiar with simple full payment upon delivery even though with lower price, many poor farmers can have enough cash for their daily life and no effected by adjustment with the old payment method.
With these analysis’s, 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.
_Question 4: Will the government support the project?_
The Vietnamese government will strongly support the project in term of both economic and large social benefits.
In 1990s Viet Nam was a poor country with a population nearly 80 million but low gross domestic product and low average annual per capita income. Agriculture still accounted for nearly half of the country’s income. With the investment in sugar industry, main economic benefits are clearly below:
Reduce deficit trade balance and foreign currency for import payment: in 1997 Vietnam consumed more than 700,000 tons of sugar (in which imported 340,000 tons) and the demand for sugar was strongly increased with economic development. Full capacity of the factory (900,000 tons) is expected to reach in 2003 so this domestic production could reduce trade import more than US$ 50 million every year (exhibit 8).
Net tax revenue: value-added tax’s effects from NATL would likely very small because the VAT was due and collected up to retail level. From Exhibit 8, NATL will pay more than US$ 6 million profit income tax per year from 2006, the government would lose about US$ 11 million in tariff revenue: the net loss is US$ 5 million per year. This is due to 30% tariff rate but in the long term when Viet Nam integrate WTO, sugar tariff rate will have to be reduced ( 15%, 10%) and profit income tax from NATL will increase from year to year so the net loss in tax revenue of the project will reduces to very small.
Industrial development: during 1990s, there were mainly inefficient “handicraft” mills in the north. NATL with 42% shares of Tate&Lyle PLC (one of world’s largest producers of white and raw sugar) would have advanced technology, modern planting techniques, well management skill. This could help to develop sugar industry in the north of Viet Nam.
Employment and poverty improvement: the project invested in Nghe An province which is one of the poorest regions (low capita income, poor health services, ox-driven agricultural equipment, and undeveloped infrastructure). NATL would employ approximately 725 workers, their wages were eight or nine times as high as wages paid to workers with similar backgrounds and equivalent responsibilities in the near-by state enterprises. The plant would require about 22,000 local farmers and to grow the cane. It also create incentives for local 300 truck haulers,
New foreign investors: with open-door policy, Viet Nam government encourage foreign sponsors investing in many fields ( industry, service, education …), each successful company would provide a good example to other foreign investors, in terms of foreign investment, Vietnam is in as good a position as other Asian countries.
Considering many above benefits and other impacts of the project such as environmental impact (It would be legible because NATL develop Greenfield project, the mill was designed to beat the World Bank’s strict guidelines on air and water emissions), transportation benefit – $800,000 cost to upgrade, the Vietnamese government would expect NATL get successful business in Nghe An province and fully support the project.