High employment costs as a percentage of the overall operating costs of the Guyana Sugar Corporation (GuySuCo) point unerringly at the bind in which the sugar industry finds itself as it chases a 2011 production target of less then 300,000 tonnes, which is what senior industry officials have said is the minimum requirement to make real economic sense.
The industry’s operating costs, set out in 2009-2018 Strategic Blueprint that seeks to assess “the present state of the industry” point to the unquestionable sustainability of the status quo. Between 2005 and 2009, labour costs totalled approximately 57 per cent of the company’s overall operating costs and accounted for US11-12 cents in a period when the international spot rate for sugar was between US12-13 cents per pound. What this meant in real terms was that what GuySuCo earned on the world market from sugar sales was, in effect, barely enough to cover labour costs.
The burden of high employment costs is the legacy of a complex wages structure which, particularly in the case of field workers, takes account of the harsh physical demands of the industry. Basic wages, according to the company’s Strategic Blueprint, account for 40 per cent of overall employment costs while a further 28 per cent of those costs are accounted for by incentives, overtime and meal allowances. A further 12 per cent of the industry’s employment costs is taken up in salaries.
Incentives to sugar workers, which are frequently the subject of differences between management and union are part of the industry’s complex compensation packages to sugar workers. Workers receive weekly production incentive payments, cane harvesting incentives and annual production incentives which are paid at year end. And while these incentives can sometimes amount to up a quarter of labour costs they “do not guarantee sugar production to meet set production targets,” the Strategic Blueprint says. While GuySuCo has conceded that the circumstances are indicative of “a serious problem with the set up of incentives and the need to review them,” any comprehensive review will doubtless be met with considerable union resistance since, again according to the Strategic Blueprint, “these high wages in spite of declining sugar production was found to result from jobs and rates negotiated in the fields as well as from rates fixed by union agreements that no longer match the work environment.” High overtime rates in the industry, for example, are said to be the result of “high incidence of short-staffing” though that was one cost which both management and the Board felt could be brought under control.
Here, GuySuCo comes as close as perhaps it would to conceding that the management in the industry has been negotiating with a weak hand against a union which, apart from possessing considerable political clout, has the capacity, in some circumstances, to close the industry’s operations, virtually at a moment’s notice.
But high employment costs have not been GuySuCo’s only headache. There are other high-cost areas including fertilizer and spares which, together, account for 78 per cent of estate material costs. Linked as it is to oil prices, fertilizer costs can sometimes treble virtually overnight as they did in 2008. Despite high fertilizer costs, however, the review of operating practices in the
industry conclude that there is “scope for better application (of fertilizer), less losses, reduced pilfering.” Additionally, it is felt that “some benefits can be derived from trying to time the purchase of fertilizer.” Overall, the Strategic Blueprint concludes that a saving of “somewhere between 0-5% may be achievable in the short term with better control of stock.”
GuySuCo also appears to be anticipating that “the age and condition of machinery and plant in use” would give rise to an increase in the cost of spares though the Strategic Blueprint anticipates a reduction in the cost of spares for factories given anticipated increases in capital spending. Still, according to the Blueprint, “poor maintenance of equipment, overstocking, of spares on estates and buying on the retail market at higher prices” have resulted in expenditure in this area.
Poor management practices may also have been reflected in the administration of fuel. According to the Blueprint, the main driver of fuel usage in the factory is cane supply. “The key here is to fill up the factories with cane for the planned 135 hours per week,” GuySuCo says, though the vagaries of cane-harvesting often do not allow for such a luxury. Ineffective coordination apart, losses may also be due to “pilfering of fuel” a practice which the company says “is hard to quantify.”