White Elephant?

January 21, 2013 | By | Filed Under Editorial 

One down to earth description of an ‘optimist’ is a person who returns home, finds his back door broken into and thinks a surprise party has been arranged for him. The new Minister of Agriculture Dr. Leslie Ramsammy is definitely an optimist. Since assuming his portfolio a year ago he seems determined to ignore the reality on the ground as it relates to the Skeldon Sugar Modernisation Strategy (SSMS).
Last October, asked whether the US$200 million dollar investment – the largest in the history of the country – might be proving to be a ‘white elephant’, the Minister retorted indignantly: “”I don’t know…what is a white elephant, because this seems like a factory that is meeting its potential.” He could have turned to the ubiquitous (if sophomoric) Wikipedia which would have informed him:
“A white elephant is an idiom for a valuable but burdensome possession of which its owner cannot dispose and whose cost (particularly cost of upkeep) is out of proportion to its usefulness or worth.
The term derives from the story that the kings of Siam (now Thailand) were accustomed to make a present of one of these animals to courtiers who had rendered themselves obnoxious, in order to ruin the recipient by the cost of its maintenance.”
Let us examine the Skeldon Modernisation from this perspective. It was intended to accomplish two interrelated goals that would combine to turn around the fortunes of our sugar industry that was about to be buffeted by a 36% reduction in our preferential price from the EU.
The modernisation would firstly expand the industry’s production by substituting the old Skeldon factory’s production of around 35,000 tonnes with the new factory’s projected production of 110,000 tonnes annually.
Since its commissioning in 2009 (two years behind schedule), with the new factory’s production averaging around 32,000 tonnes, it is suffering at least a two-thirds fall in its expected production. Yet the Minister announced a few months ago that the factory was operating at 65% capacity. But there is another dimension to this massive shortfall in production at Skeldon – one that affects the second goal of the modernisation strategy.
This is the unit cost of production of our raw sugar. Guyana traditionally has been a high-cost producer of sugar – averaging around US .22 cents per pound – and the industry was viable only because of its ‘guaranteed’ markets, primarily to the EU. The Skeldon expansion and modernisation was supposed to produce its 110,000 tonnes of sugar at around US 8 cents per pound. This was supposed to bring down the overall industry’s cost price on the projected 450,000 tonnes to a rather competitive US 12 cents per pound.
However, rather than lowering the average price of production, the Skeldon Factory has actually pushed it into the stratosphere – averaging almost US 40 cents per pound. A good indicator of this increase in production costs is the almost one-third increase in tonnes of cane needed to produce one tonne of sugar at Skeldon. What we have suggested in the past and we do so again is that we must re-think the Skeldon Modernisation and make some hard decisions.
From where we stand, it appears that at the very best the Skeldon factory might be tweaked to produce maybe half of its projected production. And this level might be all that is possible because of another crucial shortfall: the inability or unwillingness of private farmers to raise their cultivation from 700 acres to over 10,000 acres, as part of the plan.
At the very best, private farmers have only reached about half of their cultivation and with the factory delivering such atrocious yields, there is absolutely no incentive to ratchet up production. As a matter of fact we can expect some of the acreage dedicated to sugar being converted to rice.
We will not even broach the vexed question of labour. The question then is whether this level of production makes economic sense to continue with the Skeldon Factory? Or is it time to concede that the factory is a white elephant?

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