Sun | Sep 24, 2017

Seprod to outsource farm side of sugar operation

Published:Wednesday | August 12, 2015 | 8:00 AMNeville Graham
CEO of Seprod Limited Richard Pandohie.
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Seprod Limited said it distributed about $64-million in notice pay last Friday to nearly 500 workers employed to subsidiary Golden Grove Sugar Company on the farm side of the operation.

The company also faces the prospect of shelling out another $207-million on or around September 7 for redundancy payments, in what Seprod CEO Richard Pandohie said is a move by the company to outsource the agricultural side of its sugar business.

Golden Grove will continue to operate the plant, but whether the St Thomas-based factory ramps up for the next crop, which kicks off annually in December, weighs on whether it is approved as a marketing agent. By that time, Seprod is hoping to split the agricultural side of the business under an outsourcing arrangement from the manufacturing side of the sugar operation.

Both Pandohie and Permanent Secretary in the Ministry of Agriculture Donovan Stanberry said a decision on whether Seprod/Golden Grove is approved as a sugar marketing agent would come sometime this week.

The early signal, however, indicates that the decision is positive for Seprod. It would allow the company to determine its own markets and release it from the pool in which it is currently locked with other suppliers.

Seprod has lost around $2-billion on $3-billion of investment in Golden Grove since 2009. It currently owns 71 per cent of the sugar operation, while the rest is held by minority partners Fred M Jones Estates with 18 per cent, and Quadrille Holdings/Duxton with 11 per cent.

"There is no question that we have suffered losses due to poor operational practices, and that is one of the reasons driving the separation of the farms from the factories," Pandohie told Wednesday Business.

The factory is fed by 3,796 hectares of cane fields. Under its agricultural division, Golden Grove manages 1,621 hectares, while the rest is in the hands of independent farmers who are contracted to supply the factory.

For the last crop Golden Grove crushed 196,631 tonnes of cane, producing 16,018 tonnes of sugar. This was down significantly from the 2013-14 crop when Golden Grove ground 255,023 tonnes of cane and produced 19,403 tonnes of sugar.

The company's efficiency levels improved in the last crop, but remained below industry standards. Its tonne-cane to tonne-sugar or TC/TS ratio was 12.28 per cent in the crop year that just ended, compared to a 13.14 ratio last year.

However, the industry average was a TC/TS of 11 in the last crop year. And even that falls short of the preferred ratio of around 9.

EXITINGAGRICULTURALOPERATIONS

Pandohie says that going forward, if Seprod is to stay in the sugar business it would be best to exit the agricultural side of the operation.

"We have proven that we are not good corporate farmers in the cane operations, and we are outsourcing it to people who are more professional and who have better management over that aspect," he said.

"The natural fit would be F.M. Jones Estate because they're in St Thomas, but we are looking at other options also," he said, but declined to name the other prospects, citing confidential negotiations.

At present, all raw sugar production is turned over to the Sugar Industry Authority for them to dispose of on the world market through fast-disappearing preferential terms. SIA's marketing agent is Jamaica Cane Product Sales. Only Pan Caribbean Sugar Company, which also has marketing agent status, is currently outside of this arrangement.

Pandohie reiterated that Seprod expects better performance from the sugar business once it has say over its own markets.

"We want to be in control of our destiny in terms of revenue, hence the marketing agency status. We think we can do a better job of doing that than any other entity in terms of marketing and distributing the product," he said.

"We want to go value-added because the days of producing raw sugar to ship off to Europe are well and truly over."

neville.graham@gleanerjm.com