Sugar and Trust

Feb 01, 2009 Features / Columnists, Ravi Dev

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The news that we would have to import sugar has hit the national psyche very hard. To a nation founded on the production of that saccharine substance – and still is its largest industry – the decision must have been a very bitter one for the administration. But it ought not to have been a surprise either to them or to us.

After a shortfall of almost 100,000 tons from the original projection for 2008, in a country where we have never retained large quantities of buffer stocks, the triage principle had to kick in. Our information is that the Caricom markets were gradually phased out as they were the least profitable.

In fact, we had complained in the past that some of those prices were lower than our average production prices – yet billions were being spent on “marketing” our product at a loss. Marketing is one area that will have to be scrutinised very thoroughly if and when we attempt to re-enter those markets: corruption may be a factor in play.

The remaining markets were the premium EU and US markets and the local market. Even with the gradual phasing-in of the 36% cuts, the EU prices were still significantly greater that the local controlled one. This held true even when the small local price increase kicked in at the beginning of the year.

Thus if the possibility arose that the local and EU/US markets could not be satisfied through current and projected production, the possibility of importing cheaper sugar from the world market to satisfy local demand and shipping our product to the premium export market should have always been in the cards. After all, this is the standard practice in other Caricom sugar producers that have suffered from declining production: they maximise their opportunity costs.

The key to the successful deployment of this strategy, however, depends on a solid and grounded grasp by GuySuCo’s management of their production projections and a just as solid grasp by the marketing department of world production trends and prices. And it is here that we, the Guyanese people – the owners of GuySuCo – and the administration, have not been very well served.

Let us, for the sake of argument accept that excessive rainfall was the major reason for the early reduction in production. But excessive rainfall had been predicted at the beginning of the year – as it has been for this year – when again the projections were, in the midst of ongoing shortfalls in 2008, once again very optimistic.

As we have pointed out ad nauseum, the decision to accept literally that since the new Skeldon Plant was a “turnkey” operation, it would be up and running with the “turn of a key” was, at a minimum, a criminally negligent one. But when the mind-blowing optimism was dashed at the beginning of the “big-crop” – the shortfall at this location combined with the industry-wide one, management should have conveyed to the administration as early as August that importation of cheap sugar was going to be an option that had to be considered.

The fact that the issue was raised only in the last quarter has demonstrated that the GuySuCo’s rot is not only in the fields: the super-salaried “Head Office” has more than equal share in the fiasco. Surely GuySuCo’s management did not believe that all its production problems were going to be sorted out by first quarter 2009? Are they still counting on New Skeldon producing commercial grade sugar, much less in optimum quantities by then?

As we mentioned above, the marketing department should have been following world market trends; since the decision to substitute makes the most sense if the imported price (CIF plus internal handling and transportation costs) is below GuySuCo’s price to local wholesalers. Above that price, GuySuCo would be subsidising the local market from its preferential markets and showing a lower overall profit.

Since early last year a shortfall in global production of some 4 million tons had been predicted, with a consequent projection of increased prices. The later the decision to import sugar was made, the less benefit we as a nation would gain from the substitution strategy. The projected world shortfall right now has risen to 5.8 million tons and we wonder where prices from Guatemala will come in.

We want to reiterate the point that has been implicit up to now: the new interim management team will have to obtain some hard-nosed figures on projected production for 2009. Let us bite the bullet now. This does not mean that those who are crafting the “Blueprint for Success” – short term – should not propose measures to raise production, but these will take time.

At Uitvlugt, for instance (where I live) there has developed a persistent shortfall of 8,000 tons from its optimum production, caused by field foul-ups that will have a multi-year rectification timeline. We have to be patient.

And this brings me to the final point we wish to make in this article. We have been disappointed by the opportunistic statements made by some opposition politicians. If there is any group that has a claim for claiming “we told you so” it would be ROAR, but as we have said before, the sugar industry is our national patrimony and we can ill afford to try to score political points in this hour of its crisis. We invite all political and civil groupings to get behind the new GuySuCo team as it is assembled.

Amidst all the gloomy news, the announcement that the Government has accepted Parliamentary oversight (which means inclusion of the opposition) over the Disciplined Forces, was a cause for celebration. This sharing of oversight over the armed forces has been politically contested since the sixties and it is incumbent on the opposition to be positive and pro-active in its new responsibility.

Maybe the lack of trust that has been cited as the cause for our moribund politics can begin not only here but in our support of efforts to repair the ills of GuySuCo. Let it spread to all areas of political life.

I remember serving on the Economic Services Committee and gaining the opportunity to scrutinise the operations of GuySuCo (including the appearance of the Management Team and the then Minister Sash Sawh). The PPP members, including Donald Ramotar and Komal Chand, were as diligent as we were in questioning perceived anomalies in performance by management.

We were allowed to hire an “expert” to review the evidence and copious documentation. It was from this experience that I gathered much of the background that informed my later and present public interventions on the industry.

It is my conclusion that the other opposition members of the committee might have been perhaps more concerned with constituency politics than a national one in not following through with the investigations into GuySuCo. But that is now water under the bridge, they will now have the opportunity to scrutinise the new plan: the time for politics as usual is over.

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