Sugar beyond the point of no return – Clive Thomas

Economist Dr Clive Thomas says he is now more than ever convinced that the crisis in the sugar industry has gone beyond the point of no return.

In the first of a new series on the sugar industry in the last Sunday Stabroek, Thomas said “At this point of time (the beginning of 2014), I am now more than ever convinced that the crisis in the sugar industry has passed its tipping-point or point of no return. This means that all hopes for a rational, considered and ordered reform and reconstruction of the industry are lost.”

His prognosis comes in the wake of continuing bad news for the industry and the seeming lack of a clear way forward. This year’s sugar production ended at   186,807 tonnes, the lowest recorded in 22 years. In a year rife with industrial relations issues, mechanical problems and inadequate grinding capacity, the industry’s performance slid beneath GuySuCo’s minimum production rate of 232,000 tonnes of sugar for its international and local quotas, leaving the corporation severely indebted to banks and suppliers. Up to the end of August last year, sugar production was a miserable 81,000 tonnes. The flagship Skeldon factory which was hyped as having the capability to grind 350 tonnes of cane an hour was grinding just 185 tonnes per hour and management has reduced the future projected rate to 250 tonnes, calling this a far more realistic grinding rate.

In coming columns, Thomas will review issues he raised in a series of columns in 2011 and 2012. In last Sunday’s column, he said all industries and businesses go through life cycle changes and that GuySuCo and the wider sugar industry are at the industrial life cycle stage of post maturity and long-term secular decline. “As presently configured the country’s sugar business can no longer go forward as a viable commercial endeavor”, the economist asserted.

He said that the present structure of the industry was leading it to produce less and less sugar at a higher and higher cost. Noting the inevitable losses, he said this is clearly an unsustainable situation for the sugar company.

“In light of this both the EU’s continuing sugar assistance and government’s bailouts of GuySuCo can be viewed as seeking to rescue the industry from total collapse. Such a situation however represents, in essence, a classic case of throwing good money after bad. As worldwide experience has shown, while it is hard politically for governments to stop providing unwarranted subsidies to state industries, it is far worse for them to yield to those interests that are driving the need for the subsidies. The misallocation of national resources implicit in this posture is inevitably bad for everyone economically, but it will eventually also carry a devastating political cost, given the size and configuration of the sugar industry in Guyana’s political economy”, Thomas argued.

Annual subventions to GuySuCo despite continuing poor results have sparked concerns in the opposition parties and they are expected to look carefully at allocations in this year’s budget.

The issues that Thomas will revisit in coming columns include the vast expansion of the global sugar industry and particularly  the tropical cane sugar industry under a ‘transitional’ WTO-led international trading regime. He will also address the fact that even though there has been rapid growth of the global sugar industry “stagnation and decline have been the hallmarks of Guyana’s sugar industry”. Also to be covered are the key performance indicators  human resources utilization (labour and management); savings utilization (investment capital and financing); productivity (technical and technological); national resources utilization (geography and environment); as well as cultural (social and political) and what these say about the problems being experienced.

Thomas will also focus on the strategies designed by the authorities to turn around the sugar industry and how they have fared. These strategies are mainly the Sugar Modernization Project (SMP) and the later Turnaround Plan (Blue-print) initiated by GuySuCo’s Interim Board in 2009. The SMP includes the construction of the Skeldon Factory along with its related Berbice agricultural fields restructuring.

The SMP has been seen as an enormous and costly failure under the Jagdeo administration. The Skeldon factory which was built by a Chinese company has not operated anywhere to its rated capacity and a large sum has had to be spent on rectification works.

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