Tue | Sep 18, 2018

Editorial | Sugar’s continued crisis

Published:Wednesday | August 29, 2018 | 12:00 AM

We don't know if it's a good sign that Audley Shaw hasn't, unlike himself, been notoriously fast with a response to J. Wray & Nephew's (JWN) decision to close two sugar estates in St Elizabeth, thereby making 226 workers jobless.

Maybe it is that Mr Shaw, still relatively new as agriculture minister, and weighing up the social and economic complexities of the sugar industry, is being cautious. However, it is increasingly obvious that the Jamaican Government has to arrive at a decision on the industry and how much more support it gives to it, lest it find itself ensnared in a moral hazard - that is, another bailout, thus returning the Government to a place from which it extricated itself a decade ago.

While it is abandoning the Holland and Casa Marantha plantations and returning more than 2,000 acres of land to the Government, JWN insists that it isn't "in any shape or form" exiting sugar production. Rather, according to its chairman, Jimmy Lawrence, this is merely a response to economic inefficiencies at these plantations.

Many will hope that Mr Lawrence's commitment is bankable. However, it won't be lost on hard-nosed analysts that sugar production isn't the primary business of JWN, or its parent, the Italian firm Campari, despite the marketing cachet of having a brand linked to a more than 300-year-old sugar estate.

In the event, the JWN redundancies highlight the ongoing and deepening crisis in Jamaica's sugar industry, which it intended to resolve 10 years ago when the Government divested its sugar assets, mostly to the Chinese firm Pan Caribbean Sugar Company. At the time of the divestment, the Government's sugar entities had debt of nearly J$30 billion and annual losses of around J$5 billion.

Soon after the acquisitions, the Chinese shut down the Bernard Lodge factory in St Catherine. Three years ago, they returned to the Government 25,000 acres of land at Monymusk in Clarendon, whose factory the Government operated for a season until they prevailed on Pan Caribbean to operate it into the 2017-18 harvest. What happens next is not clear. Pan Caribbean's other facility, at Frome in Westmoreland, doesn't appear to be in great shape.

Another of the divested factories, Hampden in Trelawny, has been placed in mothballs by its owner, Everglades, having run big losses. The Government has, in the meantime, been subsidising the transportation of sugar cane grown by farmers in that region to other factories. Further, the Seprod Group-controlled Golden Grove factory in St Thomas has attempted several market innovations to break out of the red. Even the factories considered to be more efficient, JWN's Appleton and Worthy Park estates are presumed to be finding their economic lives difficult.

 

PLAGUED WITH ISSUES

 

There are several issues facing Jamaica's sugar industry, not least of which is the loss of its preferential markets and the efficiency of its production, which are exacerbated by falling prices for the commodity. Jamaica, one of the minnows in the global industry, produced 84,000 tonnes of sugar in 2017, merely a ripple in global output. On average, the island produced 58 tonnes of sugar per hectare of land, or 20 per cent less than the average yield in Brazil. Similarly, the 13 tonnes of cane it required to yield a tonne of sugar lagged the efficiency of major cane sugar producers. It compensated for such shortcomings with economies of scale.

More critically, in the absence of the market protection it once enjoyed, the price of sugar matters. And that has been falling in the face of increased output by producers such as Thailand and India, whose production this year will be more than 30 million tonnes, helping to drive world sugar supply to eight million tonnes above demand. The upshot: World market price has fallen around 20 per cent, to below US$0.10 per pound. At that price, it isn't only producers in Jamaica who are in trouble. Mills in Brazil also face closure.

While most of its English-speaking Caribbean neighbours have closed their sugar industries, Jamaica has historically propped up its own, treating it as social welfare rather than a business. That, of course, is untenable.