Mon | Dec 11, 2017

Editorial | The sugar problem hasn’t gone away

Published:Friday | September 22, 2017 | 12:00 AM

Karl Samuda, the trade and agriculture minister, may have bought the Government a partial respite, but by no means has it resolved the problem of Jamaica's doddery sugar industry. It still teeters at a precipice, facing the moral hazard of government intervention despite Mr Samuda, through the persistence of his entreaties, having persuaded the Chinese-owned Pan Caribbean Sugar Company (PCSC) to operate their Monymusk factory for the 2017-18 harvest.

Mr Samuda mustn't attempt to frame the development as anything more. Which means that the Holness administration still has some hard decisions to make about sugar, including thinking about alternatives to the industry, should it come to that.

Eight years ago, the PCSC's parent, a conglomerate called COMPLANT, spent US$9 million to acquire three sugar factories and the lease of thousands of acres of associated lands. These were among the holdings of the state-owned Sugar Company of Jamaica (SCJ), which lost money hand over fist.

Despite mothballing one of the acquired factories, Bernard Lodge in St Catherine, and investing more than US$260 million more in the venture, the PCSC's only return thus far is red ink. Two years ago, it handed back 25,000 acres of land in Clarendon and told Mr Samuda that it no longer intended to operate the Monymusk factory. Mr Samuda scrambled to find farmers to lease the land, while the Government operated the factory for the 2016-17 harvest, spending J$250 million (approximately US$2 million) on that venture.

After several months of Mr Samuda cajoling COMPLANT to resume production at Monymusk, until something more definitive was worked out, the PCSC's boss, Liu Chaoyu, publicly declared that they weren't interested. The company had lost too much money. Their focus would be Frome, the factory in Westmoreland. COMPLANT preferably hoped for a buyer for Monymusk, Ms Liu indicated.

This week, though, Mr Samuda announced the Monymusk deal. He didn't say what would happen after the next sugar crop. Some, however, might interpret the granting to the PCSC a licence to import refined sugar - a regulated business in Jamaica - as quid pro quo for continuing to operate Monymusk. That is questionable as Jamaica consumes around 80,000 tonnes of refined sugar annually. Approximately 85 per cent (68,000 tonnes) of this is used by manufacturers, many of whom do their own importing. The rest of the market will now be fought over by three players: the PCSC; the Golden Grove Sugar Company, a sugar manufacturer; and Jamaica Cane Products Sales (JCPS), a consortium of two other manufacturers and sugar cane growers.

 

Softening sugar price

 

All this is happening in the context of softening the price for sugar on the global market as outputs rise in major producers like Brazil and India. Jamaica's industry struggles with low capacity, low production, and financial losses.

Indeed, Golden Grove, which controls one of the factories divested in 2009, has lost over J$3 billion but is attempting innovative marketing arrangements to reverse its fortunes. Everglades Farms, which owns another of the divested factories, Hampden in Trelawny, mothballed that facility after losing millions. They are contemplating a sugar cane-to-energy scheme. In the meantime, the Government, which operated Hampden for the 2015-16 harvest, subsidises the transportation of sugar cane from that region to other factories.

Meanwhile, the European Union (EU) is financing another of the several studies of the past 30 years on what can make Jamaica's sugar industry viable. We can say what that should be: reacquisition of any part of the industry by the Government. It was divested because it was indebted to more than J$30 billion, was losing J$5 billion a year, and taxpayers were being called upon perpetually to bail it out. It is likely to be cheaper to help transition people out of sugar while the market determines what should emerge in its place.