Sat | Sep 23, 2017

What sweet nanny goat can run 'im belly

Published:Sunday | May 3, 2015 | 5:00 AM
Clarke
William Mahfood, president of the Private Sector Organisation of Jamaica, has labelled the agriculture minister overexuberant and accused him of going rogue.
Allan Rickards, chairman of the All-Island Jamaica Cane Farmers' Association, says the anti-cess lobby has been driven by hysteria.
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The Jamaican Government often deals with problems through the use of strategies that create new problems that dwarf the problems they are intended to solve.

The present administration's attempt to solve the problem of duty-free imported sugar intended for manufacturers 'leaking' into the retail trade is a perfect example. This 'leakage' undermines the viability of the local sugar industry, as it weakens its ability to satisfy domestic demand for sugar profitably.

Although the local sugar industry, through Jamaica Cane Products Sales, also imports sugar, its local marketing activities are designed to advance the interest of the many thousands who are involved in, and depend on, its viability. The industry also earns foreign exchange, and brought in just about US$60 million from its exports last year. It is, and has been for generations, a critical social and economic glue holding our rural society together. There is, therefore, good reason for the Government to prevent its viability being undermined by persons who, by evading import duties, are nothing more than common criminals.

The sugar industry has, for the last 50 years, depended for its survival on government protection and overseas preferential pricing arrangements. In today's rapidly globalising world, it is, therefore, unlikely to be able to lead Jamaica to prosperity. Nonetheless, its present value to rural society makes it necessary for the Government to act decisively to stamp out the corrosive practice of uncustomed sugar leaking into the retail trade. However, in doing this, the Government has to be careful that it does not destroy economic assets far more valuable to the economy and more critical to the country's prospect of future growth.

Most of the sugar consumed by the average person is from manufactured products like breads, cakes, soft drinks, jams, candy, and ice cream, not from sugar added in the home. To add to the cost of the sugar contained in these manufactured products would be to impose further costs on an overburdened public, already buckling under the weight of high prices and high taxes.

More important, any action taken by the Government that increases the cost of manufacturing's ability to add value to agricultural products will harm competitiveness and inhibit the economy's ability to grow. As important as the sugar industry is, it does not have the same ability to create economic value as manufacturing does. A dollar of sugar used in manufacturing can potentially yield 10 dollars of additional economic value.

 

Compromised competitiveness

 

The harm that would be caused to manufacturers by the added cost of sugar as a result of Government's possible US$35 dollar-per-tonne cess could add more than 10 per cent to the cost of this important ingredient - a cost not borne by their foreign competitors. In today's intensely competitive global market, this could be enough to jeopardise their domestic and export sales. And to the extent that their compromised competitiveness causes a loss of local market share to imports, the strain on the country's foreign exchange resources would be increased. Only flawed reasoning could have led the Government to believe it is sensible economic policy to unnecessarily endanger the economic viability of manufacturing, an activity with so much potential for creating economic value to protect an activity so much further down the value chain.

But there is an even more important principle that should be observed by the Government if economic growth is its goal.

Outrageously high import duties designed to protect local agricultural production create a price threshold that raises the prices of both the imported and local products affected, reflecting the inflated duties imposed. Important vegetables, starches and proteins to which these duties are applied are consequently priced out of the reach of the poorest among us. An inadequate diet leads to health and learning problems, which severely compromise the capacity of our people to be productive.

Take as important a protein as chicken. Because of high duties on imported chicken, the poor in Jamaica can hardly afford chicken back, which is sold for J$115 per pound in our supermarkets. By contrast, in relatively prosperous and expensive Nassau, fleshy chicken leg quarters are available at the equivalent of J$102 per pound. This is an abuse of the Jamaican poor, and would not happen if our broiler industry were protected from foreign imports through the use of direct subsidies to the industry instead. Import duty could be kept at normal low

levels and more Jamaicans would be able to afford real chicken meat instead of bone.

The negative effect on the economy is compounded when these artificial and unnecessarily high prices caused by high import duties lead employees to press for higher incomes in order to cope. The result is that businesses that are not direct beneficiaries of protective import duties are buffeted on one side by lower-cost foreign competitors and on the other by an inflationary wage spiral.

The importance of agriculture to our present socio-economic fabric cannot be denied. Many rural communities would collapse, creating enormous social and economic dislocation if agricultural output were threatened in our present economic circumstances. But the method used to protect the sector should not place an unnecessary burden on the economy as a whole. The measures used should not retard economic growth and undermine the standard of living of the people, particularly the poor.

 

Reduce taxes

 

For the Jamaican economy to grow, Government must remove all taxes from the cost of inputs to production and reduce exorbitant import duties to relieve the pressure on the beleaguered consumer.

Government should also be aware that high consumer prices have as dampening an effect on the economy as high production costs, and it must be a central part of economic planning to keep the price of both these economic elements at their lowest.

The high 128 per cent import duty on refined sugar not only forces consumers to pay more than they should for this important basic food, it is a powerful magnet for tax evaders, who profit greatly from leaking duty-exempt manufacturers' sugar into the retail trade. It is hard to comprehend why Government does not employ the enormous customs and law-enforcement resources at its disposal to prevent it. Adding costs to manufacturing cannot be an option. At least, it isn't a sensible one.

Using direct subsidies to assist agriculture is a more broadly beneficial alternative to a cess or high import duties. And, if properly applied, would add substantially to our chances of economic growth. The agricultural subsectors that now benefit from high duties on imports might now enjoy the artificial price advantage they provide. But because of the economic harm caused, they would do well to heed the caution: What sweet nanny goat could run 'im belly.

- Claude Clarke is a businessman and former minister of industry. Email feedback to columns@gleanerjm.com.