Reduced bailouts for sugar industry has already started - Finance Minister

Reduced bailouts for sugar industry has already started – Finance Minister

Dec 20, 2016 News

…but transfers will continue

By: Kiana Wilburg

The International Monetary Fund (IMF) has recommended to the Government of the day, that it must begin the process of reducing its bailouts to certain sectors, particularly the sugar industry.
The IMF documented this in its Article IV Consultation report in March, last.
The report said that according to the authorities in Guyana, planned budget transfers for the sugar industry are expected to decline and eventually cease over the medium term. The IMF also noted that transfers to the loss-making state-owned sugar company (GuySuCo) remain a drag on fiscal performance.
In its report, it noted that transfers to GuySuCo were equivalent to 1.8 percent of GDP in 2015 and are budgeted at about 1 3 percent of GDP for 2016.
IMF Staff urged the local authorities to adopt a restructuring plan for the sector that will improve cost efficiency, productivity, and alternative revenues streams, drawing upon the reforms proposed by the Commission of Inquiry into GuySuCo. It said, too, that the scope and pace of reform should take into account social implications.
But some have questioned whether the actions of the coalition administration over the last 18 months have been in keeping with the IMF’s expectations.
Finance Minister, Winston Jordan, opined that based on the allocation for sugar in the 2017 budget, government has indeed started the process of reducing the billion dollar bailouts to the sector.
He said, “When we started in 2015, we started with $12B; then 2016 we had $11B going towards the sector; and for 2017 we have $9B. So there is a process of reduction that is taking place and I dare say that for as long as GuySuCo exists, in whatever shape or form, there will have to be a process of transfers until it can be brought into a better state. It is what we call too big to fail…”
The Finance Minister said that the sector is one which has too much history for it to simply be abandoned. He said that it is a considerable part of the economy, both in terms of the Gross Domestic Product and employment. Even in the area of foreign exchange earnings, the Finance Minister said that the sugar industry plays a part in that.
The economist noted that while sugar is too big to fail and transfers would continue in some form, future allocations would have to be targeted to a substantial improvement in the state of the company.
In this regard, he expounded, “The transfers can’t continue to go down a black hole as Prime Minister Moses Nagamootoo has said on several occasions. Indeed, any structural adjustment of the kind that has to take place in GuySuCo is going to be extremely painful. All that we can do is ease the pain and hope that the measures that will be put in place will yield early fruits.”
According to statistics from the Ministry of Finance for the first half of the year, the Guyana Sugar Corporation recorded an operating surplus of $2.9 billion, down from an operating surplus of $3.0 billion for the same period last year. This surplus it said was inflated by a $9 billion transfer from the Central Government to finance operations.
Without this transfer, the Ministry of Finance noted that GuySuCo’s true position would be a deficit of $6 billion.
In the future, the Finance Ministry said that all Central Government transfers will be shown as financing, instead of being included as part of revenues.
Furthermore, it was noted that by the end of the first half of this year, GuySuCo’s production was 56,645 tonnes. This was recorded as a reduction of 23,624 tonnes from the budgeted 80,269 tonnes and also down from 2015’s half year production of 81,143 tonnes.
The Ministry of Finance said that this shortfall was reflected in a decline in export sales, from a budgeted amount of 58,272 tonnes to an actual of 49,278 tonnes, compared with 77,000 tonnes realised in the same period last year.
It noted that the El Niño weather phenomenon, which resulted in stunted cane growth and a decline in cane yields from 57.45 tonnes cane per hectare (tc/ha) in the first crop of 2015 to 45.2 tc/ha in 2016, as well as delays in tillage, planting, and crop husbandry operations, were some of the factors that contributed to this state of affairs.
Significantly, the Ministry of Finance said that sales to Caricom and the European Union (EU) of bagged sugar as well as sales to Caricom of Packaged Gold sugar were the most affected.
It said that the industry continues to be plagued by many problems, including an increase in the prices of several inputs such as fertilizers, and these have had a negative effect on the company’s ability to realise sufficient cash to cover its operating costs.
The Ministry stated, “GuySuCo has taken several steps to address some of its challenges, including negotiating with Tate and Lyle for better prices for sales to the EU market; pursuing studies to inform diversification into areas such as other crops, fruits, aquaculture, rice, dairy and livestock to reduce dependence on sugar; and rationalizing its operations for increased efficiency and productivity.”
Additionally, various stakeholders within the industry recently gathered for an important meeting which saw discussions on the worrying financial future of the sugar industry.
The stakeholders included a high level team from GuySuCo as well as representatives from the Guyana Agricultural and General Workers Union (GAWU), the National Association of Agricultural, Commercial and Industrial Employees (NAACIE) and the Guyana Labour Union (GLU).
Kaieteur News understands that a comprehensive presentation was done by the GuySuCo team, where the 47 representatives were provided with production and financial data from 2010 to year 2025.
The information presented indicated a very discouraging future for the sugar industry, where the Corporation is projecting losses of approximately $14.195 Billion in 2016 and further losses of $13.758 Billion in 2017.
The participants were advised that this situation was unsustainable and re-organization of the sugar industry was inevitable and absolutely necessary at this time.
The Union’s representatives were encouraged to submit their thoughts on how the industry could secure the future well-being of the approximately 17,000 employees and their families as well as ensuring the profitability of the business.
It was subsequently agreed that a team comprising representatives from the three Unions would meet with a team from GuySuCo to get a deeper appreciation of the financial and other data which were provided.