INCONCEIVABLE!

May 18, 2011 Features / Columnists, Peeping Tom

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The government did not simply build a sugar factory at Skeldon. It built that factory as part of a process of reforming the sugar industry, in order for it to survive in the face of declining prices for sugar in its former protected market.
The writing was on the wall a long time, and the reform process was in the works for sometime, perhaps too long. The investments that were made were done as part of preparing the industry for the inevitable shocks to which it would have been subjected.
Preferences had run their course and had to go. They could not be sustained; they belonged to a bygone age and it was to the credit of the Booker Tate management team and the government that there was recognition of a need to begin to prepare the industry for the time when prices would decline as they did.
If there was any failure, it was not in the construction of the sugar factory. The problem may have been that the factory was about four years too late, but it is a sickness of developing countries that they require a stimulus caused by a crisis to force them to act.
The investment in the Skeldon Factory must therefore be seen in the context of preparing for a decline in prices.
What was the other option? The other option would have been to develop an exit strategy from the industry as other countries have done. Unfortunately this could not have been done. Sugar is too significant to Guyana’s economy even when it is underperforming for there to be an exit strategy. Such an option is inconceivable and would have been over-daring.
Outside of constructing a large factory there was no alternative? What was the alternative?
The alternative could not have been to lower the cost of production outside of constructing a new factory. The cost of production cannot be lowered outside of new investments, consolidation – which is taking place – and closing some of the unprofitable estates, increasing production and concentrating this production mainly around a few areas.
Skeldon was chosen as the best site for the new factory around which this concentration would take place. There can hardly be objections to the choice of this location.
These were the reasons why the Skeldon Sugar Factory was constructed. To not construct it would have entailed a situation where the industry would have slowly hemorrhaged to death, because it would not have been able to absorb the full impact of the phased reduction in the price which was being paid for sugar, estimated at over 30%.
Sugar is far too important to fail. Whether the figure is 16% of GDP or 6% based on rebased numbers is immaterial. The numbers, whatever base is used, indicate that sugar is a vital sector in the Guyanese economy, not just in terms of its contribution to GDP, but also because of other considerations, including employment. It supports roles for communities and it provides foreign exchange earnings. Any industry that contributes in excess of 5% of GDP has to be considered a critical sector and cannot be done away with.
While there may be other viable sectors to which the country should transition, making such transitions are not as automatic as turning a page.
Shifting Guyana away from its reliance on sugar is not simply a theoretical exercise. There are high social costs that are incurred in that process and unfortunately those costs cannot be borne by the people of Guyana at this time or in the near future.
In any event, the reform plan for sugar presumes that the industry can survive and lower its cost of production. The Skeldon Sugar Factory is an important cog in that process.
While it has malfunctioned, this is due to technical problems, and has nothing to do with the concept behind the decision to build a new factory. This distinction is important.
If someone purchases a taxi so as to generate increased income, and the car encounters some mechanical fault, the problem is not the decision to buy a car as a source of income; the problem is the mechanics of the car.
To say that that the model is flawed simply because of technical problems of the factory is illogical.
On the other hand, there may be arguments which can be used to indicate that this huge investment was a huge gamble, but assessing whether this is so requires establishing that the sugar corporation with the new factory in place would be unable to reduce sugar production costs as predicted. In short, whether the Skedon Sugar Factory is a wasted investment depends on whether it can be established that it would, when functioning, be unable to meet its stated goals.
The sugar company has indicated that the defects should be remedied in time for the second crop. However, even if it is ready, at what capacity would it be able to function if there are insufficient canes in the field?
If there is any criticism which can be made about the sugar corporation’s reform plan, it is that it generally ignores the critical question of labour which has always been at the heart of sugar’s profitability.
The sugar reform plan speaks to investments which have to be made to make the industry more productive, but it does not address adequately the question of the availability of sufficient labour and the need to ensure that there is a sustained supply of workers in the industry. It is a glaring under-emphasis, but not one which cannot be remedied.
There is no doubt also that the most acute and immediate problem in the industry at the moment is the financial state of the corporation. The defects at the factory may be fixed soon, but the difficulties of the past few years have seriously undermined the financial position of the corporation.
The sugar industry has, however, faced graver crises in its history. The present problems will set back the restructuring process, but it will not derail it.

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