CLOSURE WOULD HAVE MEANT DEATH

Oct 16, 2012 Features / Columnists, Peeping Tom

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The idea that the government of Guyana supports the sugar industry simply because it is part of the constituency of the ruling party is a misplaced notion, and a dangerous one at that, and one capable of deepening the divisions within our society.
Ever since the World Trade Organization came into being in 1991, it was evident that the days of preferences for sugar prices were numbered. When the EU subsequently produced its White Paper on Sugar and later its Everything But Arms initiative, the writing was on the wall that Lome would be superseded and it was beginning with the Cotonou Agreement and now the Economic Partnership Agreement.
Guyana was keyed into these developments and knew that once major sugar producers such as Brazil, Thailand and Australia challenged the export subsidies that the EU applied to sugar, that it was only a matter of time before the EU would be forced to end or reduce the preferences under the Sugar Protocol of the Lome Convention.
From as early as 1992, the writing was on the wall and from as late as twelve years ago, it was clear that the provisions of the Sugar Protocol, notwithstanding all the arguments made about a  legally binding contract, were  going to be challenged as being incompatible with new world trade rules.
As such the sugar industry in Guyana began to prepare for reform. To suggest or imply that the nature of this reform was influenced by the fact that the ruling party draws significant support from the sugar belt is misleading and can lead to misinterpretations that the government was supporting sugar simply for political reasons.
The government, when it assumed office in 1992, inherited a bauxite industry on life-support. The industry was bankrupt; it needed significant capitalization and investment. It faced a downturn in prices and in international markets Guyana’s bauxite was facing increased competition from cheaper and more reliable suppliers.
The government did not however opt to close down the bauxite industry. Instead, the government continued to bail the bauxite industry out to the tune of billions of dollars just because it recognized the social costs closure would represent. The bauxite industry has been the most subsidized industry in the history of independent Guyana, and were it not for the government injecting resources to float the industry and later to court foreign investments, the bauxite industry would have died a long time ago.
In the case of sugar, the government could have also decided to close the industry. But how does one close an industry which at the time was run by the largest and richest corporation in Guyana? This corporation in turn was the largest foreign exchange earner and the largest single employer in the country, employing thousands of Guyanese who depended on this industry for their and their families’ livelihood.
This country could not then nor can it now afford to absorb the social costs of closing the sugar industry. Those who feel that the economy is now strong and therefore GuySuCo can be put out to pasture are underestimating the social costs of such an option.
It is easy for persons to suggest that the government is only bailing out GuySuCo because of political considerations. Had they been in the same position, what would they have done? Would they have predicted that eventually the prices from Europe would have been chopped and therefore it was time to close the industry?
Such an option would have led to mass deprivations and social unrest. The sugar industry could not have been abandoned, and it is to the credit, the resolve and the courage of the ruling PPPC administration that it took the decision to continue in sugar by opting for reform rather than exit.
Reform was never going to be easy. Any sector whose income suddenly suffers a cut of over 37 per cent is going to be in a problem, and indeed GuySuCo was staggered by the cuts in the prices offered by the Europeans.
To overcome these cuts and still stay in sugar demanded reforms. The reforms undertaken by the government are intended to place the industry on a firmer footing by reducing production costs. But to reduce production costs entails having economies of scale in the production process. This meant a larger factory, and the closure of inefficient ones.
It is true that the Skeldon Sugar Factory came three years late and this in itself was a costly mistake. It is also true that the problems that have afflicted the Skeldon factory have hurt the chances of recovery for the industry because by now the industry should have been producing 450,000 tonnes of sugar instead of the 250,000 that may be produced this year.
But the problems of falling production cannot be all shouldered by this new factory. In fact, it does seem that in the turnaround plan there may have been assumptions that were too optimistic, including the reliability of labour which can now no longer be guaranteed.
One of the difficulties of assessing just what assumptions went askew depends on the availability of the turnaround plan. This plan has however been guarded like a state secret and therefore it has enjoyed limited public discourse and analyses especially in relation to just what went wrong.
The performance of Skeldon is beginning to improve. This is a fact. But there are simply insufficient canes to improve production to the levels that would lead to a reduced overall cost of production. As such the problems go beyond the new factory.
What is needed are not cheap potshots by analysts. What is needed are informed analyses of the present predicament facing the industry. And the faster the government recognizes that it needs to open up the problems of the industry to intellectual scrutiny, the better it would be.
The government must particularly see the wisdom of widening the discourse on the future of sugar and the future of Skeldon. As such, it should make available the turnaround plan so that much more informed analyses can result rather than the sniping that is taking place about political interests at work.
On this score, the government needs to debunk the idea that the funds offered by the European Union to the sugar industry constitute guilt money. Ever since it was known that sugar prices would be cut in phased manner, the government of Guyana has always been insisting in negotiations with the Europeans on assistance to allow for adjustment assistance, and they have successfully negotiated such assistance.
What the Europeans are providing are not handouts based on any guilt complex, but funds which were painstakingly and diligently negotiated by the government in order to save the sugar industry.

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