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TOO BIG TO FAIL – THE FUTURE OF SUGAR

As a prelude to the privatisation of the sugar industry, the Government of President Desmond Hoyte invited Booker Tate to manage it in the hope of arresting its catastrophic decline during the years of the PNC administration. Then as now the sugar industry employed about 20,000 people and provided a substantial portion of Guyana’s GDP and foreign exchange earnings. The plot to privatise, for which no mandate was sought or given at the 1985 general elections, unravelled when the PPP announced that it will not be bound by any such agreement. As it happened, the PPP won the elections, freely and fairly held for the first time since 1968.

The professional management of Booker Tate in the 1990s, the quality of which began to decline in the 2000s, saw a dramatic increase in wages and conditions and increased production. With a guaranteed market in Europe and guaranteed prices, a promising future for sugar once again appeared on the horizon. But dark clouds were beginning to gather. The cost of production remained unsustainably high because of low productivity, aging equipment, soil quality, labour issues and other problems. The growth of globalisation was beginning to threaten sugar’s protected regime. A decision had to be taken about the future of sugar.

At the opening of the Skeldon Sugar Factory, President Jagdeo said that in considering the options, the Government realised that sugar was too big to fail. The number of families relying on the industry was too large, its contribution to the economy too great. The President said that the option of privatisation was ruled out and the only alternative was investment by the State. He pointed out that in the era of neo-liberalism it was tremendously difficult to convince the World Bank to support such a project. Finally, however, the Government prevailed and, the President argued, its wisdom of protecting large industries has been vindicated by the recent policies of industralised countries in protecting industries ‘too big to fail.’ Above all, sugar could be profitable. The Skeldon Factory was designed to produce sugar at US12 cents a pound. The world price is now US22 cents a pound. This might not be sustained over time. But hopefully, the bulk of Guyana’s sugar sold outside of its traditional markets will be sold in added value form at far higher prices than the world market.

Sugar generally, and the Skeldon Sugar Factory in particular, face enormous challenges. The President mentioned several of them. These include the restoration of management capacity and efficiency, the deployment of innovative initiatives to increase the supply of cane, industrial stability, the development of new products with added value, establishment of downstream industries and more. Sugar, he said, must pay its way and contribute to the national treasury. The opening of the Skeldon Sugar Factory gives hope that despite the daunting challenges, sugar is on its way to even greater heights.

Inevitably, comparison will be made with the Government’s approach to the bauxite industry with the argument that it was not given the same treatment. Opponents refer to the government’s investment in sugar and suggest that its failure to do likewise with bauxite is evidence of unequal treatment and worse, discrimination because of ethnicity. However, unlike sugar, bauxite gradually became unprofitable as the ore on the surface became depleted. The cost of extracting ore lower down in the ground was prohibitive and increased the cost of production to an unsustainable level. At the same time, Chinese ore of less quality and lower prices became more attractive and later took significant market share from Guyana. These problems surfaced much earlier than sugar – from about 1980.

Much effort and resources were poured into the bauxite industry since then. Restoration effort with World Bank assistance began in 1983 and continued in 1990 but did not work. Minproc, a private manager recommended privatisation in 1993. These were all undertaken during the PNC administration. It was not until much later, and reluctantly, under a PPP administration, that privatisation took place. This only occurred after it became clear that the only alternative was complete closure of the bauxite industry.

Not only did workers receive their pensions, the fund being supplemented by more than $3 billion by Government to make up contributions which had been unpaid by the company, but for more than a decade the Government subsidized Linden by about $500 million a year while pouring in resources through such programmes as LEAP. The question was not whether bauxite was too big to fail. It was whether bauxite could have been saved as a state owned enterprise. The answer was no.

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