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Jun 18, 2017 APNU Column, Features / Columnists
As we move towards contracting the sugar sector in Guyana, it might be instructive to examine briefly the experiences of other Caribbean sugar-producing countries.
Mauritius
Mauritius which is a far larger and much more efficient producer of sugar than Guyana, faced similar market risks as Guyana. Like Guyana, Mauritius was a member of the African Caribbean and Pacific (ACP) group that enjoyed special preferential access to the European Union (EU) market and protected prices for its sugar. It meant that when the special preferences were expected to come to an end in 2009, Mauritius would have to rely mainly on the world market to sell its sugar.
The sugar industry was experiencing similar conditions to those which GuySuCo is facing. It faced a labour shortage, a decline in guaranteed price of 36 percent and the eventual loss of the market preference it once enjoyed under the EU sugar protocol. With a serious challenge ahead of it, Mauritius decided to look at its sugar industry through a different prism. It saw its sugar industry as not just about growing sugarcane and producing sugar, but also about generating energy for the island and about property/hospitality development.
In other words, Mauritius used the anticipated loss of sugar preferences and prices as an opportunity to free itself from the yoke of sugar and to liberate the industry from a decade-long stagnation. By rethinking its industry, Mauritius was able to achieve the reform of its sugar industry and change it from being a manufacturer of an unfinished product to an exporter of a ready–to–consume product, by placing emphasis on refined sugar.
Mauritius also made some other adjustments to its sugar industry by putting its lands to alternative use. It built gated-communities for the foreign market in what was known as Integrated Resort Schemes. Mauritius also engaged in the building of shopping malls and the production of electricity from bagasse-powered plants.
It was thought therefore that GuySuCo could pursue a strategy similar to that of Mauritius of reducing its reliance on sugar and investing in activities of a vertical or horizontal nature.
Barbados
The harvested area within Barbados has been declining for years, dropping below 4,000 hectares in 2014. Both smallholder farmers and agricultural companies have been experiencing losses from cane growing, so the downward trend is likely to continue.
Sugar cane in Barbados is high cost and struggles for a number of reasons. It is grown under rain-fed conditions in a tropical climate, limiting both cane yields and sucrose content, as well as exposing the size of the crop to weather fluctuations. At 4-5 tonnes per hectare, sugar yields are modest by international standards and have fallen since the late 2000’s. This compares with sugar yields of more than 10 tonnes per hectare in Brazil, the world’s dominant sugar exporter and world price setter.
In the past the industry was kept afloat by preferential access to EU and United States (US) markets, which commanded large premiums over world prices, as well as government subsidies. Over time, as premiums in the EU market, in particular have eroded, the sector’s financial position has deteriorated and cane area has declined.
Should Barbados wish to keep a cane industry, because of its broader environmental and cultural significance, the Government of Barbados will have to consider how it could be supported. Under current conditions, the industry can only exist with government support for both millers and growers. The limited size of the local and Caribbean Community (CARICOM) markets, a small US tariff-rate quota and erosion of the value of the EU preference, all suggest that sugar alone will not provide adequate income for profitable came farming.
Jamaica
The sugar industry in Jamaica faces major challenges. At their root, these challenges stem from the sector’s high costs stricture. The condition under which cane is grown in Jamaica means the industry cannot be a competitive exporter of sugar at world market prices, even with investment in farms and mills. This is because world prices are set by producers who achieve much higher levels of performance that translate into lower costs.
The industry’s survival to date has been because of (a) its preferential access to the EU market where prices have commanded large premiums over world prices in most years, and (b) injections of government funds during periods when the Government of Jamaica owned part of the industry.
However, sugar prices in the EU have become more closely aligned with world market prices and are expected to remain so in the future. Moreover the Government of Jamaica (GOJ) has stated that it does not wish to inject further funds into the sector. If neither consumers in the EU nor the GOJ are sources of welfare transfers to the sugar sector, the only remaining possible source of funds are consumers in Jamaica, via high prices for sugar, electricity or ethanol and CARICOM via high sugar prices.
In the case of sugar, the industry sells brown sugar locally, but cannot access the local or CARICOM market for refined sugar without investing in refining capacity. Building a refinery would require a sizable investment as would any investment in ethanol or additional electricity cogeneration, none of which is likely with private-sector funding. This suggests that cane and sugar output will decline in the future, with only the most efficient estates remaining in operation and with sales of sugar focused on markets where the industry earns premiums over the world sugar price.
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