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Pandohie proposes sugar tax, fewer factories to save sector

Published:Thursday | November 26, 2015 | 12:00 AM
CEO of Seprod Limited, Richard Pandohie.

Seprod boss Richard Pandohie is proposing a carve out of additional market share for local sugar producers by taxing finished products made with imported sweeteners and rebates for local sugar, and is suggesting that the sector needs to downsize to no more than two factories for its long-term health.

In what appeared to be a counter to the government's proposal to centralise refined sugar importation, Pandohie told a forum that the state should incentivise the use of locally made brown sugar or partially refined sugar, even while noting that he was totally against taxing sugar as an input.

"My proposal is to tax the sugar-based finished goods, which, under WTO rules, you must tax both the imports and the locally manufactured goods. Then you give a rebate to manufacturers who replace the refined sugar with locally manufactured sugar," Pandohie suggested at the forum, hosted by Mona School of Business, on the future of sugar as a business.

"In doing so, if a local manufacturer utilises the local sugar and gets the rebate but those that are importing can't do that, then you have now created a competitive advantage for the local manufacturer," he said.

Pandohie is also advocating that sugar manufacturing be consolidated for its survival, that the sector should downsize from six to three factories, and later to two, but noted that the estates could continue to operate as sugar cane producers and as suppliers of cane to the surviving factory operators.

"I believe that even with the pain that will come from the Everglades closure, it is a step in the right direction. Use the logistics to bring the cane to other factories and actually increase the throughput to those factories," Pandohie said

"All the studies show that for it to be economically viable, you have to be producing 100,000 metric tonnes of sugar in a factory."

Total production

In Jamaica, he added, direct consumption of sugar has declined from 65,000 metric tonnes to about 51,000 metric tonnes or about 50 per cent of total production, while importation of refined sugar now stands at 70,000 metric tonnes.

Seprod owns the Golden Grove sugar estate into which it has poured around $3 billion in five years, but is yet to generate returns.

At the forum, Pandohie also joined Chairman of Jamaica Cane Products Sales Ambassador Derrick Heaven, the business school's executive director Dr William Lawrence, and All-Island Jamaica Cane Farmers' Association chairman Allan Rickards, in calling for product diversification and preparation for the end of guaranteed markets.

All forum presenters painted a grim picture of factories with dilapidated equipment, poor management, low productivity on farms and in the factories, along with unrealistic expectations from workers and politicians.

Ambassador Heaven said that, so far, privatisation of the sugar industry has not worked to lift its performance, but agreed with Rickards that running a properly funded sugar cane industry with diversified products was best left to the private sector.

Rickards pointed to the example of Worthy Park Estates, which has had only two years of losses in the last 53 years. The private estate is owned and operated by the McConnell family.

Pandohie believes that more than half of the import market could be redirected to local producers through reformed tax policy and other initiatives.

The Seprod managing director said studies show that 70-80 per cent of all sugar produced is consumed in its country of origin, and that the Jamaican industry should be reorganised to align with those norms. He argued that this can be done by a mix of cost reduction and import substitution of about 60 per cent of the import total, or around 35,000 metric tonnes.

As a producer, however, Pandohie says he flatly opposes any tax on sugar used as raw material in manufacturing.

"As a member of the JMA and a local manufacturer, I will not support putting taxation on input material. I will not support taxation on raw sugar," he said. "I will support taxation on sugar-based products, so that our relative competitiveness is not compromised."