In last Sunday’s column I sought to portray what I termed as the fundamental economic illogic or contradiction which underlines GuySuCo operations. After that I proceeded to discuss one fundamental aspect of this illogic. That is the contradiction between the high and rising real costs of production at GuySuCo and its futile search for scale economies in what is essentially an export-oriented industry, where the targeted level of output (450,000 tonnes of sugar annually) is palpably low in relation to the scale of output of its main global competitors. Together, these positions combine to form a futile and unworkable dynamic. Even with the best of intentions, GuySuCo just cannot in this situation get the job done by any means or measure.
Relatedly, the second aspect of GuySuCo’s fundamental economic illogic or contradiction is to be found in its price expectations for sugar sales, particularly after we take into account its present forced dependence on the prevailing world market price for raw sugar, in one form or another. There is no doubt among serious analysts that the world market price for raw sugar has been enjoying, over the past two years, exceptional buoyancy. During this period we have had raw sugar prices averaging US 37 cents per lb for the half-year period to June 2011. This happenstance has, however, to be located in the context of previous price booms, such as the ones in 1974 when the world raw sugar price averaged US 29.99 cents per lb; in 1975 when it averaged US 20.79 cents per lb; and, in 1980 when it averaged US 29.02 cents per lb.
Every one of these previous price peaks was followed by subsequent steep price declines. And, today there is no reasonable basis for expecting otherwise this time around after the 2010-2011 boom ends. For sure, the present boom in sugar prices will end some time in the near future, as global supply of sugar is quickly expanding.
Further, I would go so far as to advance the proposition that, the balance of probability is, if and when GuySuCo gets near to the target of 450,000 tonnes of sugar as its annual output, the prevailing price of raw sugar in the market at that time would have reverted closer to its long-run trend line. For this reason alone I would therefore argue that if GuySuCo continues to downplay this consideration, it would be engaged in extreme risk-taking, to the point of commercial folly.
Limitations
The combination of circumstances portrayed in last week’s column, together with the considerations identified above, highlight two things: First, there is a structural inability preventing GuySuCo from truly becoming a reasonably commercially profitable and self-sustaining enterprise. And second, readers need to constantly bear in mind that, at present, operationally GuySuCo is seriously hamstrung, if not crippled, by many factors, not least of which is the backlog of its burdensome indebtedness. This indebtedness is not only to its shareholders (the government/taxpayers) but also to private sources of credit and loans, as well as its past and present workforce and other stakeholders.
The logic of this situation means there can be no hopeful future for GuySuCo as it is presently structured and strategically positioned. There is no road forward for GuySuCo. It is caught in a cul-de-sac and must retrace some of its steps in order to find a way out of its predicament. In other words, there can no longer be business-as-usual. While alternatives have already been put out to the public by both individuals and organisations on the way forward for GuySuCo, these have either been ignored, at best, or worse, dismissed out-off-hand by both GuySuCo and the Government of Guyana.
I shall be starting next week, adding my own views to those already out there. I should, however, make it very clear upfront that in my judgment in essence GuySuCo, as it is presently structured, must go and should be replaced by an entity (or entities) not wholly state-owned and state-governed, but involving 1) local, regional and external investors; 2) worker organizations; 3) farmers; and 4) the general public (as key stake and shareholders).
Painful reality
The painful reality on the ground is that the importance of GuySuCo, along with sugar-cane farming, has been significantly reduced in the economy. This is happening because of 1) the relatively better performance in other sectors of the economy (rice, gold, services); and 2) GuySuCo and the overall sugar industry’s decline. Let us consider, in this regard two key performance indicators.
One of these is sugar’s share of the country’s Gross Domestic Product (GDP). In 1992, when the PPP/C administration took office, sugar contributed about 20 per cent of real GDP and 29 per cent of GDP measured at current factor cost. By 2010 the comparable figures were 5 per cent of real GDP (at 2006 prices) and 2.9 per cent of GDP at current basic prices. Indeed by 2010, rice, gold, and bauxite all of which had in 1992 contributed less than sugar to GDP were now surpassing sugar.
The second indicator, which is the share of the value of sugar exports in Guyana’s total merchandise exports, also reveals a similar pattern. Thus in 1992 sugar exports accounted for 37 per cent of merchandise exports, but by 2010 this had been reduced to 11 per cent, despite the fact that the sugar price was approaching a new peak as indicated above of 27.03 US cents per lb on average for 2010. Indeed in absolute terms Guyana’s sugar exports stood at US$102 million in 2010 as compared to US$134 million in 1992.
