Wed | Jun 19, 2019

Editorial | Bitter downward spiral of the sugar industry

Published:Tuesday | June 11, 2019 | 12:18 AM

The announcement by Seprod Ltd of its planned July 2019 closure of the Golden Grove Sugar Factory in eastern St Thomas, with the loss of 150 jobs, should not be a surprise. In September 2018, the company signalled that it had racked up losses of close to $4 billion in the sugar business and was seeking a $1-billion tax write-off, as it struggled to keep the operations open.

Recently, the chief financial officer of Seprod, Mr Damion Dodd, musing about the sugar operations, stated that “we have tried everything over the years to make it sustainable, but it’s really a bigger issue. It has to do with the entire industry”.

What Mr Dodd is partly alluding to is the fact that the closure is consistent with the general trend in the Caribbean sugar industry since the loss of preferential treatment for sugar exported by African, Caribbean and Pacific (ACP) countries to the European Union (EU), following the reform of the EU sugar regime in 2006.

A general assessment done prior to the EU sugar regime, showed that large sections of the Caribbean sugar industry would not be able to survive under a global, free-trade system due to very high domestic production costs and low productivity. Many Caribbean sugar factories and fields were found to be relatively small by global standards, using very old technologies and with a labour force that is old and undertrained. The EU sugar regime anticipated that many factories would have to close, and that some countries would get out of sugar completely, once the new regime came into force.

Only Guyana and Belize were adjudged to have production costs, and potential scale, that could allow them to survive in sugar in the long run. Jamaica was adjudged to be marginal. Some Jamaican government-owned factories were judged to have a chance of sustainability if they were divested; serious industry reform took place; and there was significant investment to upgrade both factory and field operations.

In the case of Jamaica, a Government of Jamaica(GOJ) Sugar Adaptation Strategy was developed in 2005 in line with EU guidelines and approved for implementation over the period 2006-2020. The EU agreed to provide funding for the reforms and to aid GOJ macroeconomic goals, particularly debt reduction.

To kick start the Sugar Adaptation Strategy, the Government provided a redundancy payment of $2.3 billion for workers at the four divested sugar factories. It also absorbed some $20 billion of the state-owned Sugar Corporation of Jamaica’s debt into the Ministry of Finance. Significant amounts were also used to pay consultants and other costs to facilitate the divestment of the sugar factories.

Despite the implementation of the Sugar Adaptation Strategy since 2006, the local sugar industry has largely failed to achieve long-term sustainability. From a peak production of 500,000 tonnes of sugar in 1965, today the industry struggles to produce 100,000 tonnes annually. The downward spiral of production and the closures are in line with predictions following the reform of the EU Sugar Protocol.

Over the last three years, the Monymusk Sugar Factory in Clarendon, which was sold to the Chinese company, Pan Caribbean Sugar, was handed back to the GOJ, along with the lands.

The factory is on short-term life support in the form of a subsidy from the Government. This is not sustainable. The Long Pond Sugar Factory in Trelawny, sold to Everglades Ltd, was closed in 2017. Also closing was the privately-owned Appleton Sugar Factory in St Elizabeth.

With the Government’s haste to sell off the Bernard Lodge sugar lands for other types of development, the stage is well set for Jamaica’s sugar production beyond 2020 to be concentrated possibly in two factories – Frome in Westmoreland and Worthy Park in St Catherine.

URGENT REVIEW NEEDED

Beyond the general statements from the minister of agriculture about the need to utilise some of the existing sugar lands for other crops, there has not been a clearly articulated plan put forward to meet what is now clearly the post-sugar era in Jamaica. The minister of agriculture should give the people of Jamaica, through the Parliament, a full and complete update of the GOJ’s plans for the industry going forward, including an update on the Sugar Adaptation Strategy 2009-2020 agreed with the EU. It would also be useful to hear from the rather silent Sugar Industry Authority, which has overall responsibility for regulation.

It may also be useful for the Economy and Production Committee of Parliament to convene urgent hearings around the recent developments in the sugar industry and the plans for the future. Much is at stake.