National Assembly Update, 2010: ‘GuySuCo — robust, strong and firm-footed‘

Introduction

Guyanese are rightfully concerned that all major industries in the economy are performing well. I believe this would be true regardless of whether a particular industry is owned by foreign private or local private investors. When, however, the industry is state-owned, and therefore in part by them (as taxpayers) they have a deeply vested interest in its performance outcomes (whether employment levels, profitability, production or productivity). Citizens need assurance that the industry is performing in a manner to secure both its present viability and continued sustainability into the future. In other words that it works inefficiently and is not a drain on public (taxpayers) resources.

Therefore, when the Minister of Agriculture makes a pronouncement on the sugar industry there is little doubt in my mind that citizens would pay very close attention to that pronouncement.

The title of this week’s column summarizes a remarkable update statement published in the Guyana Times, December 23, 2010 and reportedly made by the then Minister of Agriculture to the National Assembly. That statement reads: “The Agricultural Minister, Robert Persaud has said the Administration is confident that next year (2011) will be a landmark year for the sugar industry … we are very confident … in terms of the industry being robust, and being strong, and being on a firm-footing to withstand the effects of the price cuts and other challenges” (My italics).

Indeed GINA had previously reported with perhaps less flourish, the Minister had also reported to the National Assembly’s Economic Services Committee the Turnaround Plan for the Sugar industry “was reaping results.” As readers are aware the Turnaround Plan is the name given to the ‘Strategic Blueprint for Success,‘ a document prepared and presented to GuySuCo’s Interim Board. Later in this column I shall provide more detail on what GINA had reported the Minister as saying.

2nd crop 2012 ‘bonanza‘

Not to be outdone, the present Agriculture Minister (Dr Leslie Ramsammy) is now being reported as asserting that good weather and good labour turnout could lead to a bonanza second crop this year. From his point of view this occurrence would signal a remarkable turnaround for sugar. More specifically, he has gone on record as projecting Skeldon would be producing “50,000 tonnes of sugar in the not too distant future” and “100,000 tonnes by 2016.”  Such is his fervour over a 2012 second crop sugar bonanza, that some readers may have failed to recognize this pumped-up projection still remains 10 per cent below the 110,000 tonnes per year target, which should have been achieved by Skeldon years ago!

There are several contentious issues raised by these outlier assessments and prognostications about the future of the Guyana sugar industry made by the past and present Minister of Agriculture. These will form the subject of the remainder of this column, and will be continued next week. I shall organize the discussion under two headings, namely 1) the Turnaround Plan, and 2) the Skeldon Sugar Modernization Project (SSMP).

Turnaround plan

Let me begin the discussion by drawing readers’ attention to the fact that, under both of the headings to be used for this discussion, the statistic that matters most as an indicator of the state of the sugar industry is that which indicates production (productivity). As we previously noted, the SSMP has targeted 450,000 tonnes of sugar annually as the amount required to ensure the sustained economic success of the industry. However, it now seems that the Turnaround Plan (2009-2013) has targeted 310,000 tonnes of sugar annually as the “financial break-even point” for GuySuCo. As every economist would tell you, and this is indeed readily gleaned from the wide difference in the two targeted amounts, these two concepts do not have the same meaning.

Yet for both targets the basic reality is actual sugar production for the period of the Turnaround Plan already completed so far (2009 to the 2012 first crop) has been the worst for the entire 2000s. Furthermore, the first crop output for 2012 (just over 71,000 tonnes) has been the lowest first crop in decades! (See data shown in the table below).

     Sugar Output (’000 Tonnes)  

Years    Output    

2009    234

2010    221

2011    205

2012* (First crop only)    71

Source: Bank of Guyana, 2012 and GuySuCo

Details show average sugar production for the three full years of the Turnaround Plan completed so far (2009-2011) is only 230,000 tonnes. One has to go back to the 1990s to find a lower three-year average. And, more significantly the three-year average for the Turnaround Plan so far is 75,000 tonnes below the amount obtained in the early 1960s! Recall, the 1960s was a time when there was far less capacity in the industry (in particular no new factory at Skeldon).

The Turnaround Plan has envisaged a wide number of actions, most of which were designed to revitalize and re-focus the SSMP. It has been described grandiloquently as a “transformational” effort “to restore sugar to its rightful place in the economy.” It focuses principally on 1) cost of production and its key components at GuySuCo; 2) labour-relations (human resources management); 3) product improvement (quality and value-added); 4) management, and 5) wider social issues.

It is for these reasons that in his report to the Economic Services Committee in 2010, the then Minister spoke approvingly of cost cutting at GuySuCo, particularly management and labour costs. Specifically, he informed that the cultivation cost of cane had fallen by about one-quarter, from G$650,000 to G$490,000 per hectare. He had also indicated that management costs had fallen significantly (approximately G$300 million). Further, the Minister boasted that co-generation at the Skeldon factory had “brought salvation to Berbice’s electricity woes.” Perhaps above all he spoke of his confident expectation that GuySuCo would return to profitability by this year (2012), and linked this achievement to the break-even point of producing 310,000 tonnes of sugar each year.

Next week I shall continue the discussion from this observation.

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