As I read the history of Guyana, one of the points emanating from scholars of previous generations is the uncompetitive nature of sugar production in British Guiana. In a 1945 paper, Sir Eric Williams was one of the first scholars to imply the polder system of agriculture decreased the productivity. Dr Walter Rodney (1981) and Alan Adamson (1972) further noted that sugar survived because of estate amalgamation, improvement in boiler technology, the lobbying power of the planters in Britain and wage suppression through slavery and indentureship. When Britain moved to Ricardian free trade in the middle nineteenth century, British Guiana sugar came under increasing pressure as other colonies and non-colonies gained access to the British market. The situation was made worse by European subsidy of beet sugar and the preference of the confectionery industry for the cheaper substitute. After independence the sugar industry would be propped up by preferential prices under Lomé Convention.
If the average and marginal cost of production are high, then wages will most likely be suppressed (since it is the control variable) as was indeed the case. I have a recent paper ‘The colonial origins of Guyana’s underdevelopment,’ in which I argue that the low savings rate in Guyana can be traced to wage suppression after 1838. Moreover, I suggest that policymakers should consider the interaction among difficult geography, external price shocks, cost of production, historically low wages and low savings rate when pursuing any major capital and industrial plan.
There were four columns of Development Watch specifically dedicated to the problems of and possible solutions for the sugar industry. This one repeats a few proposals while positioning the crisis within the context of 300 years of history. The first post-independence policy choice that worsened the outlook for the uncompetitive industry is nationalization, which would drain management talent from Guyana and cause the country to lose foreign exchange as reparation was paid. The policy also took away talents from other areas of private and public management.
The second sin in the post-independence era was the decision to sink US$200 million into the Skeldon sugar factory. The global trends in sugar prices at the time should have alerted the policy makers not to go down that road. A simple time series chart of the world market price and average cost of production should have done the trick. In addition, it was obvious to many observers around the late 1990s that the Lomé Convention would come under challenge in the WTO. I remember this possibility being discussed by teachers at the University of Manchester. In the late 1990s and early 2000s, Mr Ravi Dev consistently made the argument that Lomé would not survive under WTO rules. I received my fair share of cursing from PPP shills for arguing against Skeldon.
Why was Skeldon a very bad idea? The answer to this question will illuminate the motive behind the title of this essay. Sugarcane is a good input for several high value commodities (and services) like electricity, craft rums, ethanol, molasses, heritage tourism and others. However, sugar is of little value on the global scene. This column made the point several times that as our income rises we tend not to consume more sugar. However, as incomes increase people desire more leisure, high end alcoholic drinks, gym time and energy. In other words, the income elasticity of demand for sugar is quite low, but much higher for energy (ethanol and bagasse), tourism, high end craft rums and craft beers aged in old rum cases.
Sugar production should therefore be phased out and kept to a minimum and the assets of the industry must be devoted to creating multiproduct firms. Some assets should also be devoted to growing other crops such as coconut. Coconut as we know is another remarkable input for several high value products.
If in 200 years Guyana could not compete in the world sugar market (hence slavery, indentureship and political struggles), don’t expect that the GuySuCo COI can come up with a magical plan to make the industry compete overnight.
Therefore, the path facing the industry is beyond accounting tinkering. There cannot be an accounting or financial fix for the industry. The problem is the main product the industry produces – low income elasticity sugar with its unpredictable world price. It is time to stop viewing the problem through the prism of accounting costs and instead look at opportunity costs – the next best alternatives that the industry could produce.
First, several Guyanese including this column has noted that one possible alternative is ethanol. However, this product choice should be supported by a Parliamentary E10 mandate. This guarantees a market that would motivate private investors to get on board, possibly working in joint venture with GuySuCo. Second, bagasse should be seen as crucial to supplying electricity in an integrated electrical grid system relying on natural gas and several other renewable energy sources. Third, each village in Guyana has a unique and remarkable story. For instance, owners of Plantation Better Hope and my home village Plantation Houston made a point of hiring only former African slaves and contract-expired Indians at higher wages even though cheaper indentured Indians were available. Now, that’s a story of progressivism. Heritage tourism should be on the agenda.
Fourth, it would be a major mistake for Guyana to not build on the world class rums like El Dorado 15 and 21 Year Old and D’Aguiar XM 10 and 15 Year Old. I am not certain whether GuySuCo can make rums, but the government should be thinking about craft rums for the global markets. Perhaps joint ventures can be made between GuySuCo and the two national giants – DDL and Banks DIH. The margins on these high end rums are significantly greater than sugar. Fifth, the Antidesma plant is often seen as interfering with sugarcane. However, this is an easy problem to control and Antidesma can co-exist with sugarcane. Antidesma is seen as in invasive plant, yet one study forgot sugarcane is not indigenous to Guyana. Some land should be devoted to growing Antidesma to produce wine. This is an obvious opportunity for a private-public joint venture. It will be a fairly novel product, so high returns will be gained early before others in the Region jump in. I have tasted this wine and it is up there or better than most wines coming out from Europe, California, Chile, Argentina, South Africa or Australia. This much abused tree grows very well – on its own without nurture – in the coastal polder plain. I am almost certain this wine can fetch a higher profit margin than bulk or packaged sugar.
Sixth, a small amount of bulk sugar should be produced for inputs into local and Caricom soft drink and confectionery firms. A small amount of packaged Demerara sugar can be exported and consumed at home. Seventh, the industry has to think about large scale coconut farming and the possible agro-processed products. Eighth, dairy could be a possibility.
Of course, all of this depends on the political climate. I have argued in the past that both PPP and PNC are incentivized to sabotage each other’s policies. I have modelled this in an academic paper that derives an underdevelopment equilibrium trap. Therefore, I am not surprised to witness GAWU calling for workers to strike at a time when the industry is insolvent. At a moment of crisis, GAWU should have a development plan to help save the industry.
The union leadership should know that it is better to have a low paying job than none at all. I am not aware of any firm competing in the global arena granting its workers a wage increase when it is insolvent. Are these people for real? Insolvent firms always send people home. Some folks will argue that GAWU was striking against the PPP government. However, GAWU was not against PPP it was anti-Jagdeo/Ramotar then; hence the strikes.
Comments:
tkhemraj@ncf.edu
