GuySuCo: Spending more to produce less sugar

Introduction

Recently, while examining the archival material in my possession on GuySuCo, I came across three documents which I believe readers would find instructive at this stage of my consideration of the sugar industry. One of these is an earlier column I wrote about a year ago (September 18, 2011). There I found mention of a GuySuCo target set for achievement in an earlier year that now turns out to be identical to the one I cited a couple of weeks ago, which is now being  set for achievement in 2013! The target was to mechanize 40 per cent of cultivated sugar cane by 2011, with the remaining percentage semi-mechanized by 2014.

That column had also mentioned that not only was the Skeldon Sugar Modernization Project (SSMP) targeted at 435,000 tonnes of sugar annually, but in addition 1) Skeldon’s new factory would be accompanied by the remodelling of the Albion factory to process 415 tonnes cane per hour (tch); 2) Rose Hall estate would be closed; and 3) all other factories would be refurbished to achieve efficient production at their indicated capacities. Additionally, nearby agricultural lands would be brought under sugar cane cultivation, as the sugar target of 435,000 tonnes was predicated on the production of about 4.1 million tonnes of cane from 50,850 hectares.

Incidentally, the planned capital cost of the SSMP at the then prevailing prices, was US$182 million for Skeldon/Albion/Rose Hall and US$46 million for the refurbishing of GuySuCo’s other factories. This total excluded recurrent investment expenditures on the estates.

Mission

The second document echoes my earlier reference to GuySuCo’s stated intent of becoming “the employer of choice” in Guyana’s labour market. This aim is located in the high commercial ideals of GuySuCo’s Mission Statement, which are:

“To be a world class sugar industry producing high quality sugar and added value by-products, while ensuring customers satisfaction, employee development, environmental protection, and safe working practices.  In so doing we will achieve growth and sustained profitability in order to contribute to the economic and social development of Guyana.”

Contrary to these lofty ideals, GuySuCo has unfortunately functioned as a major source of ‘prags‘ and an ever willing resource handmaiden for the ruling political elites, as is starkly revealed in its open and blatant abuse of company vehicles and equipment for party political campaigning purposes.

Be warned

The third and most important of the documents contains a succinct appraisal of GuySuCo’s financial performance in the early 2000s and a forecast of GuySuCo’s future. Readers are warned that the comments/observations in this document are, to say the least, harsh, brutal and direct, but nevertheless remain, in my view, basically true a decade later. I shall indicate five of these observations by way of illustration.

First, the document bluntly observes, “Guysuco continues to make huge losses [which] have eroded the capital base of the company and placed its very existence in great jeopardy.” Second, it further points out, the most troublesome feature of these recurrent losses is not merely that they cannot be sustained, but the fact they were occurring a few years before the anticipated cut in the Sugar Protocol (SP) price.

Third, the document expresses concern over the “manipulation” of GuySuCo’s accounts. Thus after GuySuCo was allowed to keep the proceeds of the Sugar Levy, former payments were “written back” to revenue received.

The net result of this accounting procedure was that, the overall loss of G$3.7 billion recorded in 2003 was reduced to G$844 million for that year.

Fourthly, the document goes on to state graphically: “The financial results of Guysuco make for depressing reading. An analysis however, of the data may induce manic depressive psychosis.” Further, “Although sales in 2003 increased by 11 percent over sales for 2002, the cost of sales … increased by 23 percent.” As would be expected this cost referred to GuySuCo’s spending on labour, materials and service items, which I have already reviewed several weeks ago.

Spending more
to produce less

Finally, the document points out several alarming features that are worth bearing in mind; for example, 1) GuySuCo was “spending more to produce less” (used as the title for this column);  2) the direct costs of  sugar production were rising alarmingly; and 3) the same is true for administration/ marketing/distribution costs.

I found it a striking coincidence that, a decade ago, the document would speak to a major point of present day contention. Thus:

“In order for Guysuco to breakeven … assuming a production range of 300-330,000 tons, it would have to achieve a truly miraculous turnaround given the fact that it has not been able to reach a breakeven position even with the Sugar Protocol prices over the last four years consistently.”

Indeed the document goes further: “From whichever angle we approach the problem of achieving a viable result, all the various simulations/scenarios demonstrate that Guysuco is heading inexorably towards financial disaster and ruin.” (my italics)

This is an extremely harsh prediction. A decade later, however, the basic position of GuySuCo has not improved. Despite taxpayers’ bailout funds and EU donor support for sugar (conscience money) after its unilateral denunciation of the SP, the tide has not been turned.  I therefore continue to question the folly of throwing good money after bad. In the interest of all Guyanese, GuySuCo cannot continue to be treated as a sacred cow, beyond rational debate.

Next week I shall look at GuySuCo’s strategies to improve production and productivity and thereafter, conclude the series with a brief recap of earlier proposals for a re-structured sugar industry.

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