Jamaicans invest big in sugar

Published: Friday | December 6, 2013 Comments 0

Aubyn Hill, Financial Gleaner Columnist

Everglades Farms
Limited and Seprod, through its Golden Grove Sugar Company Limited, have invested tens of millions of US dollars in their sugar, rum and molasses businesses at Long Pond and Hampden estates in Trelawny, in the case of Everglades, and at Golden Grove in St Thomas, in the case of Seprod.

Seprod is a publicly traded manufacturing and agricultural business and is a member of the Musson group of companies. Musson is one of the largest conglomerates in the Caribbean and Central America with operations in more than 30 countries, employs more than 5,000 people with revenues in excess of US$1.5 billion. Musson is a Jamaican conglomerate.

Sugar may not be viewed by the public or even government ministers and officials as a sexy investment destination, but these private-sector investors are transforming important parts of a very mature industry.

providing jobs

These investments are providing thousands of jobs in two parishes that are outposts from the main geographic economic areas of the country.

Everglades' investment in Long Pond and Hampden is driven by matriarch Ruth of the Hussey family and covers three generations through her sons and daughters and to her grand-daughter, Christelle Harris.

One of her sons, Andrew Hussey, is the CEO of the company. The Hampden distillery has been in existence and making rum for over 250 years, while the Golden Grove factory was built in 1926.

Both sets of Jamaican investors have taken a long view on the industry and the country, and have put significant funds in factories and cane lands to back their vision.

In July 2009, the three estates - Long Pond, Hampden and Golden Grove - with the accompanying distillery, sugar factories and the great house at the Hampden estate were divested through sale and lease agreements from the Government of Jamaica (GOJ) to these two Jamaican companies.

Along with the two largest estates and factories at Frome and Monymusk - leased and sold two years later to the Chinese - these really old factories and related assets were the object of severe under-investment and mismanagement by the GOJ. The last year these factories operated under GOJ ownership, the six estates and five official factories lost in excess of J$5 billion.

At the time when all the assets were put on the divestment block, the combined losses were in the vicinity of J$20 billion.

taxpayers' burden

This was part of the burden on Jamaican taxpayers' backs from the misadventure of our Government when it decided on the nationalisation of the sugar assets in the mid-1970s.

Everglades and Seprod stepped in to the privatisation fray and leased lands for 50 years, with a lessee option for another 25 years, and bought the factories and distillery.

In the case of the Hampden Great House, Everglades agreed by contract to refurbish and upgrade the property following the guidelines of the National Heritage Trust.

Since taking over the two estates, Everglades Farms has invested over J$1.5 billion in new factory and distillery equipment and upgrades, as well as in the cane farms and the great house.

The Hussey family, which runs the Terra Nova Hotel on Waterloo Road in Kingston, is turning the venerable great house, the quaint and unusual distillery — which produces, I am told, a most unusual rum especially loved by the Germans — and the farms on the 24,000-acre property into a most attractive tourist destination.

As leader of the divestment team which divested the five factories and six estates on behalf of the GOJ — I was appointed by the PNP administration and kept on by the government formed by the JLP — the investment and management approach taken by Everglades and Seprod is the one for which we hoped.

Seprod and its partners have invested about J$3 billion in the purchase and farming of cane lands, new factory and proposed renewable-energy equipment, transportation and working capital in the four and a half years since they acquired the Golden Grove sugar assets.

They see these long-term investments as necessary to create value and profits for their shareholders.

Since acquiring the 1,200-hectare estate from GOJ, Seprod has purchased another 800 hectares from private individuals and entered into contracts with other private cane farmers to supply cane to its factory.

Like Everglades in Trelawny, Seprod has become the largest employer in St Thomas. Seprod also owns and operates Serge Island Dairies in the parish.

At the height of the sugar crop, the St Thomas factory employs about 900 persons, while Serge Island Dairies employs about 300. Those numbers are for direct employees and, therefore, do not include the staff of transport and other service contractors, or the employees of contract and cane farmers who all are linked directly to the factory. If one uses three to five dependents of employees as a multiplier, then the full economic effect on people in St Thomas is easily identified.

Everglades Farms employs about 1,000 people and the same kind of multiplier would come into play.

There are many good reasons why these Jamaican investors have decided to invest this heavily in the local sugar industry. They include a good export market covered by a multi-year contract, negotiated by Karl James who runs the Jamaica Cane Products Sales company, which will earn foreign exchange; the ability to improve factory efficiency and flow profits to the bottom line; local distribution opportunities for sugar, molasses and rum; and the long term increase in land value - especially if that land is on the coastline.

But maybe the biggest play will be in renewable energy from bagasse and solar sources.

Already Everglades have installed solar systems in a bid to reduce its energy costs, and it plans to use its bagasse by-product from cane production for the same purpose.

The Golden Grove cost-of-energy target is to move its current cost from about 44 US cents much closer to the Brazilian sugar industry figure of 11 US cents. Today the factory spends an estimated US$2.5 million per year on JPS supplied energy —the single largest item on the company's expense ledger.

The plan is to continue the increase of cane production from the 104,000 tonnes the company inherited from the GOJ, and grow to 300,000 tonnes from the 180,000 tonnes achieved in the 2012 crop. Land under cultivation will double to 4,000 hectares and, most importantly, the factory will produce all the power it needs and sell an estimated US$1.5 million to the power utility.

Together with the sale of rum, sugar and molasses, energy savings and sales from the sugar industry are slated to become a major foreign exchange earner and saver.

Those who want a sweet and attractive investment destination for outside and local capital, think sugar industry. Between Campari - they bought Appleton spirits but really bought a sugar company; Pan Caribbean Sugar - the Chinese government company which owns and operates Frome and Monymusk estates and factories, and which I will address in another article; Everglades; and Seprod, the sugar industry has had about US$500 million in new investment the past four years.

Which other Jamaican economic sector has had that kind of investment in those difficult years?

Aubyn Hill is the CEO of Corporate Strategies Limited and was an international banker for more than 25 years. Email: writerhill@gmail.com, Twitter: @HillAubyn, Facebook: facebook.com/Corporate.Strategies



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