Renowned economist Dr Clive Thomas says that the sugar industry cannot be sustained in its present form and while it is not an option he favours, privatisation may give it the lifeline it needs.
Professor Thomas says the sugar industry is in a long-term structural crisis that was accelerated after government agreed to the EPA, an agreement which he said signed away this country’s right to a commercial price for sugar. The EPA had been vehemently opposed by President Bharrat Jagdeo but he acquiesced in the end after several concessions were offered by the EU.
Europe is paying a meagre sum for GuySuCo’s sugar, Thomas said, noting that better prices prevail on the world market. The Economic Partnership Agreement (EPA) cannot be easily opted out of, he observed, but argued that it should not have been signed period.
Sugar is in a crisis and has been for almost two decades now, according to Thomas, who told Stabroek News in an interview yesterday that the problems in the industry range from the EPA “sell out” to political interference, and government’s failure to exit sugar with a strategy.
“From the moment we did that sugar was doomed,” Thomas said of the EPA. The industry will continue to struggle because of the poor decisions which are being made, and he cited the Skeldon expansion project as a case in point.
Professor Thomas argued that the figures which are projected in GuySuCo’s turnaround plan do not represent sufficient scope for reaping economies of scale. The industry remains high cost without any possibility of the cost going down, he said, noting that many industries which reap true economies of scale are producing around 20M tonnes of sugar or higher annually.
To this extent, he said the government should not have gone into the Skeldon expansion, but focused instead on confining sugar production to those markets where they could get a premium price; he cited markets in the region and a few in the United States.
Though not a proponent of privatisation, Thomas said it would be the lifeline which the ailing industry needs. He laid out a plan for turning things around suggesting that the corporation is first dismembered followed by the privatization of the estates.
GuySuCo has become an albatross in the industry, he continued, noting that the private sector would take a serious look at how the corporation’s resources could be fully utilized and how to get it back to profitability. He said the corporation has many lands which could be put to other uses, particularly in the Demerara area, adding that housing development is one area worth exploring because it will create employment and generate a profit.
Government remains in sugar for political reasons, he said, noting that the burden could be shifted from the government to the private sector if his suggestion is heeded. He stated that once the industry is profitable it would be able to sustain employment and therefore workers would not suffer.
“This industry cannot be sustained in its present form…instead of coordination we have to look at flexibility,” he added. But he emphasized that “turning of the switch and walking away” is not the solution because an exit strategy is required.
According to Thomas, GuySuCo has always been affected by political interferences since its nationalization in 1976, and he contended that the corporation has never really operated as a true business. He said too that during the PNC-led administration “this came in the form of a sugar levy,” and today it is a Board of Directors that lacks the expertise.
Production
Thomas recalled that the sugar industry produced 370,000 tonnes of sugar in 1976 and he stressed that this was with less assets than they have now. Taking this into consideration, he said, it shows how inefficient the industry has been because production is now hovering around half of this figure.
He said that talk of the corporation working to get production up often amuses him because of what it had accomplished decades ago before the modern era. However, he argued that over the past few years politics and constituency support took precedence over the profitability in the industry and this resulted in an erosion of the commitment to being an industry first.
Thomas pointed out that many suggestions which he made about the industry almost two decades ago were never taken up; noting that he is not even sure anyone even looked at them.
On the issue of full mechanization of the industry, he said that this is a dream because of the type of soil in the country. Thomas said that machines cannot easily operate on this type of soil, stating that there is work which requires manual labour. The conversion of the lands to mechanized fields is virtually impossible and would be too high cost, he added. “We don’t have the capital to do this,” he stressed.
Sell out
In finally agreeing with the EPA, he said that the government signed away the rights Guyana had under the sugar protocol which gave the country a premium price for sugar; a price which he said was not a concession but an obligation. He recalled that when the Lome Agreement was signed in 1972 with Europe a premium price for sugar was determined.
He said that the agreement was a commercial agreement and not a preference at a time when the world had expected a shortage in commodities. He argued that the region was pressured into signing and cannot be blamed for wanting to hold firm to the agreement. EU sugar reforms over the last few years saw the abrogation of the sugar protocol and the slashing of prices paid to African, Caribbean and Pacific producers of sugar by 36%.
“It was a treaty which was signed and based on the agreement one side cannot unilaterally abrogate it…if our government had challenged it and it had gone to international arbitration I think they would have had an extremely strong case, and they would have won more benefits in the future than all they can imagine we get out of the EPA,” Thomas said.
He said that the price Europe is currently paying for sugar has at times been lower than the world market price. “We can sell all the sugar we have to them, but it doesn’t make sense because of the low rates,” he added. But he emphasized that there is no easy way out of the agreement because the sales have already been dedicated to Europe.
Thomas said President Jagdeo realized what was happening towards the end and tried to make last ditch effort, but he stressed that it was too late. However, he observed that Guyana could have been isolated easily if it did not sign the agreement in the end because the Cariforum had already signed on.
