Thu | Sep 21, 2017

Seprod signals exit from sugar business

Published:Wednesday | July 8, 2015 | 7:00 AMCamilo Thame
Chief executive officer of Seprod Limited, Richard Pandohie.

Seprod will shutter its sugar factory and walk away from its $3 billion investment if it doesn't get control of selling the products it makes.

Golden Grove Sugar Company, as the operations which it took over from the Government in 2009 was renamed, has not turned a profit despite retooling at the manufacturing plant and expanding cane fields.

It racked up $2 billion in losses over the past six years.

"Management has drawn its line in the sand," said Seprod's CEO, Richard Pandohie, at the company's annual general meeting at The Jamaica Pegasus hotel in New Kingston on Monday. "We have calculated our cost to walk away from the operations, and now we want to ensure that this cost does not increase from here on."

The manufacturing company's chairman, P.B. Scott, told shareholders that the biggest problem the Jamaican sugar industry has faced was the regime that disallows most sugar producers from negotiating selling price and finding buyers for their products.

structural adjustment

Currently, most of the locally made sugar is sold by Jamaica Cane Products Sales (JCPS).

"If you do not have control of the revenue side of the business, then you have a very difficult issue," said Scott. "What is absolutely clear is that the industry requires structural adjustment and significant changes for it to survive in the long run."

"If those changes are made, it is our intent to participate in the industry," he said. "If it is not restructured to our liking, we will be exiting the industry."

A decision will be made in a matter of weeks. If the changes are not made by then, Golden Grove will not be firing up its factory for the next sugar crop.

It likely will take more doing than a change in the regime governing the sale of Jamaican-made sugar to get the St Thomas-based operations into the black, but the structural adjustment to the industry could go a far way towards improving the company's sales.

Chinese-owned Pan-Caribbean Sugar Company (PCSC), which operates three of the formerly government-owned sugar estates located at Monymusk, Clarendon; Bernard Lodge, St Catherine; and Frome, Westmoreland, managed to get released from selling through JCPS.

By producing approximately 40 per cent of the sugar made in Jamaica, it gets to supply an equivalent share of the domestic market, which commands a higher price than exports.

Consequently, PCSC sold 86 per cent of its sugar domestically in 2014 (up from 61 per cent the year before), selling the rest to the United States. In 2013, it sold nearly 40 per cent of its sugar to Europe.

It secured an average selling price of $77,200 per tonne of raw sugar in 2014, albeit that was lower than the $83,100 it was paid on average for its product the year before.

international sugar prices

However, international sugar prices have been falling.

Pandohie reported that the price paid for its sugar in 2015 fell by 32 per cent, from $75,000 per tonne last year to $51,000.

What's more, input costs have been rising, particularly the cost of cane, which nearly doubled from $2,750 in 2009 to $5,000 on average last year.

Seprod managed to expand the cane it has planted in the ground by 70 per cent during that time - that is, it increased the approximate amount of cane it had growing in its owned fields from 77,500 tonnes at the end of 2009 to 131,000 tonnes at the end of last year.

Golden Grove, however, remains in very bad shape financially.

It had a working capital deficit of $1.3 billion at the end of 2014, and its total liabilities exceeded its assets by $870 million. It recorded a $400-million loss last year compared with a $522 million loss in 2013.

Seprod currently owns 71 per cent of the St Thomas-based sugar manufacturer.

camilo.thame@gleanerjm.com