Cane payment information
Cane payment in Queensland is based on the sugar content of the cane and the price obtained for the sugar in it. Cane payment is one of the items in a Cane Supply Agreement, which each cane growers has with a milling company.
Like many industries in the world, the Queensland sugar industry historically operated with a cane payment formula that was arbitrated by government. There was an attempt to devise a formula to allocate net proceeds from sugar sales between millers and growers so that profits were shared on roughly the ratio of their assets.
When it was introduced in 1916 the formula was based on industry production relativities at that time. Average recovery of CCS (Commercial Cane Sugar, a measure of recoverable sugar in the cane) at that time was 90 (ie 90 tonnes of sugar of a standard quality sugar produced for each 100 tonnes of CCS) and the average CCS of cane was 12%. It was determined that, at base levels of efficiency, the proceeds should be split in the ratio of two-thirds to growers and one-third to the miller for standard production – standard efficiency of 90 on the miller’s part and cane of average quality (12% CCS) on the growers’ part.
This efficiency level would entitle the miller to the proceeds from four of the 12 units of CCS with the remainder going to the grower. This gave a formula of the form:
Pc = Ps x (90/100) x (CCS – 4)/100
where Pc and Ps are price of cane and price of sugar respectively.
Over the years, the form of this formula remained unchanged, but a constant was added to the end that grew over time. In 2000 it was $0.578.
Thus the formula became:
Pc = Ps x (90/100) x (CCS – 4)/100 + 0.578.
The incentive built into the formula allowed the miller to increase recovery efficiency without having to share the proceeds of that increased recovery with growers. Because the formula specified a standard recovery of 90%, the benefits from any capital spent on improving sugar recovery went totally to the miller. This encouraged Queensland mills to seek improvements in their recovery levels. As a consequence, recovery levels today are often over 102 tonnes IPS sugar for every 100 tonnes of CCS supplied.
The formula also provided incentives for growers to improve the recoverable sugar content (CCS) of their cane. Since the “one-third of the returns due to the miller were embodied in the formula by the (CCS-4) factor, any improvement in recoverable sugar resulted in increased income for the grower.
Government no longer has a part in negotiating cane supply arrangements, but most agreements still contain a formula similar to the one above. Some mills include a factor to enable growers some share in products other than sugar, such as molasses. Mackay Sugar has gone further than this, putting in place a formula that is based on a constant split of all mill income from sources such as cogen, molasses etc and allocating payment to individual growers on the basis of a new formula for estimating sugar recovery knows as PRS (percent recoverable sugar).
The sugar price in the cane payment formula used to be the same for all growers and was the outcome of a sugar pool sold through Queensland Sugar Limited. Nowadays, this price can vary from one milling company to another, depending on the markets into which the sugar is sold and local arrangements. Many growers nowadays use futures contracts to hedge the price of some of their cane into the future. If a farmer uses futures to lock in a particular price, that is then applied in the cane payment formula above to determine not just what he or she is to be paid, but also the tonnage of cane that the tonnes of sugar hedged equates to.
Payment for cane is made on the basis of Commercial Cane Sugar (or CCS). This is calculated by a formula based on the assumption that sugarcane contains pure sugar, impurities, water and fibre only. It assumes that only pure sugar is made, and that for every kilogram of impurities which goes out of the factory, half a kilogram of sugar accompanies it. This is expressed in mathematical terms by saying that CCS is equal to the sugar in cane minus half the impurities in cane.
This formula assumes a measure of sugar and of impurities, neither of which can be measured directly. The industry has a convention of measuring sugar with a polarimeter, which measures the way the sugar solution affects polarised light (called “pol). It measures impurities by measuring all of the material that is dissolved (called “brix) and taking away the sugar. Anything dissolved, minus sugar, is assumed to equal impurities.
So the CCS formula is:
CCS = sugar in cane – ½ impurities in cane
= pol in cane – ½ (brix in cane – pol in cane).
Although brix and pol in cane are hard to measure directly, brix and pol can be measured relatively easily in juice. Unfortunately, the brix and pol in the juice is not the same as the brix and pol in the cane. Consequently, some correction factors have to be built in, Fibre is part of the correction factors.
After fibre and other corrections are added to the formula it becomes:
CCS = 3/2P (1 – (F+5)/100) – ½ Bx (1 – (F+3)/100, where
P = % pol in first expressed juice,
Bx = % brix in first expressed juice, and
F = % fibre in cane.
The procedures for measuring pol, brix and fibre are set out in local cane analysis programs and generally follow methods described in the BSES “Methods Book. Analyses are carried out in mill laboratories with provisions to audit the results.
Most mills now use an inferential analysis method; NIR (Near Infra Red Spectroscopy) which allows for direct measurement of fibre and CCS on each sample.