Examining the local sugar industry

Sep 30, 2015 News

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Sase Singh is the newest contributor to Kaieteur News. Beginning today and continuing every week, he would be writing on issues that form the conversation point among many a table or. Today he will look at sugar, the commodity that was once king.
The relevance of Uitvlugt estate to sugar by Sase Singh.
When one reflects back to 1976 and to the whole act of nationalization of the sugar industry, one can imagine how a people felt then – as Nehru so aptly put it “a tryst with destiny.” Sugar was supposed to be the backbone of the economy and even though it literally collapsed by 1988, after some carefully crafted interventions under the Hoyte administration and continued under the Jagan government, it rebounded by 2002 with a production of 331,067 tonnes.
What has happen to sugar since 2002 is a classic case of how not to run a sugar industry. This also reinforces why politicians must leave the industry to professionals.
As a prerequisite – we must level with the people! Why the 2010-2014 audited reports for Guysuco was not laid in the Parliament as yet remains a serious concern for me. This is a defect inherited from the Jagdeo/Ramotar administration. It is expected that the current administration will urgently address this defect in good corporate governance as soon as the Parliament is reconvened.
What is quite evidential was that Guysuco was managed in a manner to perpetuate the very political survival of the PPP rather than produce sugar most efficiently.
But a new day dawned on May 11, 2015 and to whom much is given, much is expected. The 16,000 workers in the sugar belt and the 69,000 who directly and indirectly feed from the industry expect a metamorphosis in how the industry is managed.
Sugar has to be managed as a private sector business in distress. Much bolder and more progressive policy initiatives are expected for the sugar belt. When the PPP arrived in Government, Guysuco contributed some 18% of GDP. By the time the PPP lost office, Guysuco was contributing below five per cent of GDP. This is clear evidence of what the PPP did to the sugar industry.
What should we do with Uitvlugt estate to better preserve the long-term economic life of the sugar industry?
Why Uitvlugt? According to Professor Clive Thomas, the “sugar yield for this estate was 2.85 TSH  in 2013”.  TSH is tons sugar per hectare of land harvested. This pales in comparison to estates like Albion where the sugar yield was 5.43 TSH in 2013. TSH is one of the principal performance measures of a sugar estate, The higher the number – the higher the yield; the more productive the estate; the higher the chance of profitability. From this example, Albion is almost twice as productive when compared to Uitvlugt.
For the record, the sugar industry in the 1970s had productivity of – 5.81 TSH, in the 1980’s – 4.71 TSH, in the 1990s – 5.64 TSH and in the 2000s – 5.91 TSH. Even in the colonial days the sugar yield in the industry was around 8.40 TSH. But the data clearly highlights that Uitvlugt is on a planet all by itself when it comes to efficiently producing sugar.
COST OF PRODUCTION – UITVLUGT
From Professor Thomas’s sugar series in the press, he alluded to the fact that in 2012, the unit cost per pound of sugar produced at Uitvlugt was US$0.43.  This was estimated to have increased to US$0.57 in 2013. That was in an era when Guysuco was being paid an average of some US$0.31 per lb for its sugar. But to compound matters, the cost of production did not materially improve in 2014. Guysuco earned ONLY US$0.21 per lb for sugar exports.
This is no joke – the taxpayers of Guyana were subsidizing sugar produced at Uitvlugt by some US$0.22 per pound, more than what the country earned from sugar sales.
Yet the decision makers under the Jagdeo/Ramotar administration failed to offer any tangible turnaround plan.
In light of the facts, our option are limited on Uitvlugt?
THE MERITS OF PLANTATION TYPE AGRICULTURE AT UITVLUGT
For years, the terms of trade with respect to table foods vs sugar have been very advantageous. For over a decade now, it made absolute sense to switch out of sugar at Uitvlugt into plantation scale table food production (cash crops, fruits and vegetables) but yet this was not done. In the Caribbean, the demand for higher value fresh foods (chopped and packaged fruits and vegetables) has increased significantly.
What did we do to penetrate those markets? Very little! Today, the Caribbean imports quite conservatively, over US$2 billion in packaged fruits and vegetables and Guyana is still a small player in that market although we have the potential to dominate. Fresh foods are being imported into the Caribbean from as far away as Asia.
The labour market and wealth revolution at Uitvlugt is premised on the abandonment of sugar in favour of a well-managed table foods plantation that utilizes the latest farming technologies.  The studies have already been done to establish that the 4Ps (pineapple, hot peppers, pumpkin and plantains). Some of the 4Cs (coconut, citrus, cassava and carrots) can be efficiently produced in Region 3.
In additions to the 4Ps, NAREI has established that Region Three can even produce a wider variety of products including cherries, ground provisions, legumes, other type of table ready cash crops such as squash, cucumber, bora, cabbage, ochro, eggplant and so on. The potentials are tremendous.
 THE MODEL
The production process has to be driven by current and future demand (committed buyers). Every individual product must be planted and harvested because of this demand. Plus certification is vital; no product leaves Guyana unless it is fully certified by the food inspector from each importing Caricom country at the point of packaging. It is expected that the larger importing Caricom countries will sponsor their food inspectors who will be domiciled in Guyana. In that way only the best products are shipped to the shelves of Caribbean supermarkets and the kitchens of the hotels.
As a bolt on to the basic operations of planting, reaping and agro-processing (at the Parika facility which is already in place) of fresh foods, there should be a juice plant to periodically process juices in periods of low demand for the packaged fresh products.
But before any of this can be achieved, the Ministry of Agriculture has to ensure that the Uitvlugt plantation meets all the phyto-sanitary and other regulatory standards required by the importing countries.
The proposed ownership structure envisages a large private sector agriculture entity (with a track record at producing non-traditional agricultural crops on a plantation for the export market). This entity should not be engaged only because of their capital, but because of both their capital and their technical understanding of the production and marketing landscape in the Caribbean.
This local or international company shall be allowed to invest in this publicly traded company up to a limit of 80% of the ordinary share capital with the remaining 20% being reserved as a source of wealth for the sugar workers under an Employee Share Option Plan. Part of this 20% minimum shareholding (10%), shall be distributed at negligible cost to the workers as bonus shares based on their years of service (irrespective of rank).
The workers shall also be sold some preference shares at a negligible cost, which comes with a five-year guarantee of a fixed dividend irrespective of whether the company makes a profit or not and cannot be sold before five years. The remaining 10% of the ordinary shareholding will be sold to the open market but the Uitvlugt workers will have first right to purchase on a first come first serve basis. These Uitvlugt workers will also have the first right to a job in this project based on their skill set.
CONCLUSION
A nation that cannot use its land to generate wealth and jobs for all will become a threat to its own sovereign existence. Becoming competitive on the food export market and creating jobs are crucial to our national security.
It is time to re-energize the Sugar Transformation Agenda within the sugar belt so we can export more foods at better prices and stimulate the creation of new value added jobs for our people. The journey to make Guyana the breadbasket of the Caribbean has begun. It is time!

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