Guyana’s sugar: Its industrial life cycle and collapse

Introduction

 

As testimony to the present dire state of Guyana’s sugar industry and its continued importance to the socioeconomic, political, and cultural life of the country, last week I began a third series of columns on this topic in the space of only three years. There I asserted the industry had reached a point of no return, or alternately a negative tipping-point. This week I shall address the question: what do these descriptors seek to convey?

My response is straightforward: basically the point of no return is that point in time where the industry’s critical mass provides a clearly identifiable irreversible negative moment in its life cycle. As a rule at that point the industry should not be allowed to continue in its present configuration. The reason for this assertion is that the sum of the forces in support of the industry (which is its total internal and external momentum and inertia) does not have the capability of sustaining its operation so140112clivefor a protracted period of time. At present, the major external forces supporting the industry are those provided through the considerable European Union’s (EU) financial assistance and Government of Guyana bailout funding. However, at this point in time, the providers of this external support are faced with a crucial economic dilemma: should they continue throwing good money after bad?

The crucial considerations behind this dilemma are 1) the industry is currently producing less and less sugar at higher and higher cost; and 2) even the most cursory examination of the proposed solutions to its predicament, which are offered by management and policy-makers in the industry reveal their infeasibility, given the geo-economic, social, commercial and financial configuration of the industry. As I will show in later columns the short to medium-term strategies provided in the GuySuCo Sugar Industry Strategic Plan, 2013-17 remain, a year after the plan’s inception, incapable of capturing the long-term time frame required for broad-based restructuring and the structural transformation of such an important industry.

Readers should note a few synonyms that may help capture the essence of the notion ‘a point of no return.’ These are 1) the threshold point at which the terminal decline or collapse of the industry becomes imperative; 2) the negative tipping-point in its life cycle; and, 3) perhaps more vividly, the point of no return, which is routinely applied to the flight of airborne vehicles.

 

Industrial life cycle

The business and economic literature traditionally identifies four stages in the life cycle of an industry. These are its introduction phase; the period of growth; the period of maturity; and finally, the stage of decline and collapse. In the literature over the years, these phases have been further deconstructed into several constituent elements. For our present purposes we shall not pursue these concepts except to note it is self-evident that the Guyana sugar industry’s point of no return is being identified as occurring during the fourth phase of collapse and decline.

Several important features are clearly revealed at this point of no return. First, and perhaps most obviously is the fact that, at this stage, total output and exports of cane and cane sugar continue to trend downwards over the long term and show no sign whatsoever of a reversal in the industry’s fortunes.

Second, at this point also, the industry’s financial performance has deteriorated alarmingly. Annual profitability, as an operational monitor, has given way to obsessive concerns by GuySuCo over achieving “loss reduction” and securing external assistance (including government bailout).

Third, long-term efficiency investments are regularly deferred by management in order to meet immediate needs. In particular this deferment includes spending on research and development (R&D), as well as maintenance. Cutting corners in maintaining the agricultural infrastructure, its production processes and systems, as well as its equipment and machinery have become routine. The same applies to factory operations, buildings, roads, drainage and irrigation, as well as other needed physical works. Obsolescence in the fields and factories cannot be addressed in a timely manner because of resource constraints. Thus complaints by those who work in the industry have become legendary and relate to poor replanting schedules, rationing of fertilizers and chemicals, no factory retooling and so on.

Fourth, in all departments unit costs continue to rise: field, factory, marketing and administration. And with reducing output the pressure on revenue margins is immense. While EU assistance and Government of Guyana bailout funding offer partial relief, as indicated above this is not a sustainable solution to the commercial dynamic of GuySuCo, which is structured to perform as a parastatal public corporation and not a government welfare agency. Fifth, despite increasing public subsidies being deployed to the industry, GuySuCo trends towards the accumulation of indebtedness to private businesses as well as arrears in revenue collection by state and local bodies. Domestic and foreign private suppliers are reluctant to extend commercial credit. Similarly, financial institutions become anxious over the repayment of outstanding debts to them. And, at the very least, their response to this is to raise the cost of any additional credit.

Finally, in the face of all the above (and indeed added adverse occurrences), the efficiency of the productive factors employed in the industry declines well below not only industry averages world-wide, but also those, which had previously obtained in the earlier stages of the industry’s life cycle.

Details in support of the indicators mentioned above will be provided in the columns to follow.

Conclusion

It goes without saying that, at the point of no return, global competition in cane sugar production, has far outstripped the efficiencies of the Guyana sugar industry. Indeed in other parts of the Caribbean where sugar producers faced a similar reality of imminent collapse, governments have more or less already abandoned the production of cane sugar for export.

After this rather extended description of the state of Guyana’s sugar industry, my next column will provide a brief overview of the state of the global sugar industry in order to contextualize Guyana’s.

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