GuySuCo: Throwing good money after bad EU conundrum

As I observed last week, with stunning condescension the European Union (EU) Ambassador, at the signing ceremony for the agreement on “EU budgetary support for Guyana’s ailing sugar industry” was reported in the press as remarking: “Sugar is the industry of the future.”  He was also reported as stating: “that with the new scheme of the world economy, the World Trade Organisation (WTO) forced the EU to review its preference mechanisms that were applied to countries like Guyana, across the world” (Guyana Times, May 25, 2012).

Indeed, it was further reported that the Ambassador  went on to state: “We [EU] were forced/pressed to move from the preferential regime to that one, [sic] but doing that we tried to do it at least in a smooth way” (ibid).  The Accompanying Measures described last week was as he asserted: “Geared at helping the governments of the countries involved to deal with the new situation of price cuts.”
These words contrast starkly with the explanation that I offered for the EU’s denunciation of the Sugar Protocol (SP).  They also speak volumes to the conundrum, which I presented last week:  Does the EU’s interest in Guyana’s sugar go further than ensuring that when GuySuCo expires, it does so slowly?  In other words, it dies the death of a thousand cuts!

The new conundrum that arises this week is whether the EU is engaged in deliberately throwing good money after bad.  Several experts have queried: are there not better ways to use the funding provided by the EU assistance for constructive agricultural development?  At the moment the EU seems bent on distributing “conscience money” to Guyana and other ACP countries, no doubt out of guilt and remorse.  Once again though, the real concern is whether EU policy is fair to the citizens of Guyana or Europe.

Income transfers

As I previously observed it is not widely appreciated that, in the immediate decades following the signing of the Sugar Protocol (SP) in 1975, the African, Caribbean and Pacific (ACP) sugar exporters were actually subsidizing Europe’s sugar consumption.  This was due to the fact that the negotiated prices for raw sugar, which they obtained, were below world market prices.  In effect they were transferring resources from the ACP to Europe!  However, in later years this situation regarding income transfers would be reversed.  This happened primarily because through deliberate subsidisation of its domestic sugar production, Europe emerged as a leading global sugar producer, exporter and importer of sugar.

For the sake of providing readers with some idea of the size of the income transfers I am talking about, we can look at Guyana where the size of these resource transfers under the SP have indeed been considerable.  Between 2006 and 2009 the EU price for raw sugar was cut from 523.7 euros per tonne, to 335 euros per tonne.  And, according to studies I reported on last year (September 11, 2011) the income transfers to Guyana were, on average for the period of the 1990s up to 2005, roughly 7.5 per cent of its GDP (Guyana’s export quota to the EU averaged 160,000 tonnes of raw sugar during these years).  This transfer declined to under three per cent of GDP after 2005; the price cuts, as indicated above, began in 2006

Use of funds

The topic which should be considered at this stage is the major uses of funds under both the EU’s Accompanying Measures and National Budget support.  First, and foremost, there has been expenditure on the Skeldon Sugar Modernization Project (SSMP).  As previously indicated the public may not be fully aware that this project has been in the making for over a decade now!
Further, the Skeldon factory project was originally designed to be accompanied with the modernization of the Albion factory and the expansion of estate cane cultivation.  This was also to be accompanied with the closure of Rose Hall.  These accompaniments are hardly ever mentioned nowadays, although as originally conceived they should have been already completed.

Second, there has been the Enmore Packaging Plant, constructed by Surendra Engineering Corp to package at least 40,000 tonnes of sugar per year.  Commissioned in May 2011, this plant was intended to be in full operation by the end of last year. Although promoted as a flagship project by GuySuCo (because it adds value to raw sugar) this has not happened, and indeed recent press reports suggest that no significant sugar packaging for export took place during the first crop of 2012.

Third, there have been investments in field layout, replanting and so on. These have been designed to permit substantial use of mechanized means of production, which has become more urgent due to labour shortages and industrial conflicts. Indeed, the 2012 National Budget reported that GuySuCo had achieved 55 per cent mechanization at Skeldon and 70 per cent mechanization at the Enmore and La Bonne Intention estates (National Budget 2012,  page 26).

Fourth, as readers are aware, private cane cultivation has traditionally been a minor, but not insignificant factor, in the sugar industry.  Over the years, private cane farming has accounted for 8 per cent of total output.  Most of this has traditionally taken place on the West Coast of Demerara.  The goal of the present investment effort, however, is to increase the private cane farming contribution by about one-half, to reach 12 per cent of total output.  More to the point the SSMP has been predicated on the successful nurturing of a substantial cadre of private independent sugar cane farmers in the Berbice/Corentyne area.
Next week I shall continue the assessment from this point.

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