Editorial | The charging knights of sugar
As he dons his armour of taxpayers' dollars, mounts his steed and prepares to ride off to be the saving knight of Clarendon's sugar cane farmers, Audley Shaw will hopefully have read Paul B. Scott's summary of his own foray into the industry. It was delivered with great pithiness.
"We've lost an obscene amount of money," Mr Scott told the Financial Gleaner at the weekend. He was talking about the Golden Grove factory and sugar estate in St Thomas, controlled by the Seprod Group, a food and commodities-centred conglomerate of which Mr Scott is chairman.
The factory was one of those divested by the Government in 2009, and since then has lost, it is conservatively estimated, more than J$4 billion, including the more than $300 million it sucked from Seprod's bottom line in 2017. The previous year, the loss by Seprod's sugar operations was more than J$750 million. Mr Scott admits to an "emotional attachment" to Golden Grove, which may be the reason why Seprod has "kicked the can down the road" rather than get out of sugar manufacturing.
It is Mr Scott's business if he wants to be sentimental about Golden Grove. At least, it's a matter between himself, his board and his shareholders, of which, fortuitously, he is the major one. In the event, P.B. Scott presides over a hugely profitable conglomerate.
Grave moral hazard
Audley Shaw, the minister with responsibility for commerce and agriculture, unfortunately, doesn't have the same insulation as Mr Scott. He is a member of the Government that presides over a country whose debt is more than the value of all the goods and services produced in a year and whose struggle to balance its budget demands restraint.
Mr Shaw, therefore, subjects the Government to grave moral hazard when he offers the Clarendon sugar cane farmers a blank cheque to plant their crop for the next harvest, with the assurance that the State will have it milled at some factory, regardless. At a minimum, there will be subsidies for the transportation of the cane to factories for milling.
There are good intentions behind Mr Shaw's actions. He believes it is part of "a duty and an obligation to do the best that we can to rescue and turn around the sugar industry". Herein rests the moral hazard. For, it is not only Mr Scott's mill that's bleeding red ink.
He is being propelled to act because of the decision by the Chinese-owned Pan Caribbean Sugar Company (PCSC) to mothball its Monymusk factory in Clarendon, which has racked up more than $6 billion in losses at that plant since its acquisition a decade ago. The Government spent at least J$300 million to ensure that the factory operated last year after PCSC indicated it would shutter, having earlier given back thousands of acres of associated farmlands.
The Government was forced into a similar venture at Hampden in Trelawny, another of the divested factories, whose owners shuttered it after a few years. Now, sugar cane growers are given subsidies to transport the commodity to other factories. It is widely believed the PCSC's other mill, at Frome in Westmoreland, which, too, has generated substantial losses, is teetering at the precipice. These concerns are exacerbated by the recent decision by J. Wray & Nephew, primarily a rum distiller, to end farming at two estates in St Elizabeth, although it says it is committed to the industry and will keep its factory running.
We do not share Mr Shaw's optimism of finding a buyer for the Clarendon factory. Nor are we sanguine about the future of Frome. We do not take as bankable J. Wray & Nephew's long-term commitment to sugar. At some point, too, Mr Scott will stop kicking the can.
The point is that Jamaica's is a small and inefficient sugar industry that for nearly two centuries survived because it operated in a preferential market, which no longer exists. And even then, Government has, not infrequently, been called on to provide bailouts, which it has done out of fear of losing 30,000 primarily seasonal jobs.
Yet, the combined losses of Mr Scott's company alone could more than cover direct financial transfers to those workers during a period of transition. Further, it is possible that lands freed from sugar can produce crops to substitute for up to a fifth of the US$700-million food bill.