The Guyana Sugar Corporation’s current cost of production for sugar is more than double the world market price.
GuySuCo’s Finance Director Paul Bhim made the disclosure on Thursday before the Economic Services Committee of Parliament.
The disclosure will raise further concerns about the viability of the heavily-indebted industry.
Even with the preferential rates still on offer by the European Union, GuySuCo’s production costs are far more than its earning potential. The state-owned company, which was summoned before the committee, revealed that currently GuySuCo produces sugar at an average cost of US$0.35 per pound while world market prices have averaged US$0.16 per pound. For the last 15 years, the government has been saying that the intention was to bring the cost of sugar down to around 17 to 19 US cents per pound. Thursday’s revelation would underscore that no progress had been made in cutting costs despite the investment of around US$200M in the Skeldon modernization project.
GuySuCo does enjoy preferential rates from the European market, however the corporation sells at an average of US$0.25 per pound. This would essentially mean that the corporation was selling its sugar at a loss. GuySuCo’s current debt situation was revealed at the same committee hearing to be $58 billion with $19.4 billion being short-term debt in need of servicing. Bhim stated that unfortunately the company could not simply cut back on spending because 70% of costs are fixed.
He said that to cut costs when it came to the improvement of the agronomy and the fields would be detrimental in the future. Bhim stated that money had to be spent to ensure that years from now more damage is not done.
Bhim added that last year’s average prices were approximately US$700 per tonne of sugar while this year there has been a drastic decline to just under US$500 per tonne.
Chairman of the committee and APNU Member of Parliament, Carl Greenidge said that the corporation was just not realistic in its expectations. He stated that a lot was being said in relation to the preferential pricing and as it stands GuySuCo was not even surviving in the preferential market.
Greenidge stated that GuySuCo needed to look beyond what used to be and realize that the much lower world market prices are the reality. He chastised the corporation for clinging to the ideals of a preferential market.
In January of 2013 the European Parliament’s agriculture committee voted to maintain until 2020 the European Union’s national beet sugar production quotas which means that the dedicated allotment for sugar from Guyana and other ACP countries will continue up to that period instead of ending in 2015 as originally envisaged. However in June of 2013 as part of larger reforms to the Common Agriculture Policy, the EU Parliament finalized an agreement to cease sugar production quotas in 2017.
GuySuCo had been granted a lifeline in that they were essentially given a 2015 end date to reform with an additional two years tacked on. Surprisingly, observers say, the state-owned corporation formulated its 2013-207 Strategic Plan inclusive of the preferential market.
Critics have long been dumbfounded as to why the sugar corporation would seemingly not be thinking ahead with long-term provisions being put in place for an already struggling sector.
Last year, Guyana’s Ambassador to the European Union (EU) PI Gomes told Stabroek News that while African, Caribbean and Pacific (ACP) countries will continue to have access to the European market after the end of the sugar quota in 2017 it will “hardly be commercially attractive” and this country could be one of those starved out of the arena.
Gomes noted that the European Commission has conducted research establishing that “the price will drop so low that it will hardly be remunerative for ACP exporters by 2022.”
“The core point is that ACP exporters, in general, need time. Since most are in the process of restructuring, diversifying, improving efficiencies, etc precisely to deal with a liberalised EU sugar market by 2020, to introduce the likelihood of a drop in prices, fluctuations and speculation in 2017 will mean our duty free/quota free access will hardly be commercially attractive,” he explained.
Thursday was the second time in less than a week that GuySuCo was brought before the committee. The committee will reconvene in October at which time members have asked GuySuCo to come better prepared with feasible strategies that will lower production costs.
The last time the committee met with GuySuCo was two Fridays ago, when the corporation was urged to rework its strategic plan following the fluctuation of sugar production targets for the year.