A DEPRECIATING euro may see the Guyana Sugar Corporation’s returns for 2011 diminishing by an additional 14 per cent on an already truncated European Union pricing, and this may force the corporation to seek ways of adding value to its operations, already trimmed down by the Turnaround Plan.
In an email to this newspaper, the company said that if the euro remains at the same rate as it is today (US$1.22 to €1), then this will equate to an additional price cut of 14 per cent.
On the basis of shipments to be made to the EU for the remainder of the current year, this rate would result in a loss of revenue of over $840 million. In 2011, at this rate, the Corporation would experience revenue losses of $2.3 billion when the minimum contracted quantity of sugar (185,000 tonnes) is shipped to Europe.
At a recent forum, President Bharrat Jagdeo said that the 14 per cent reduction in revenue due to the falling euro will only exacerbate the already hard-hitting 36 per cent cut in prices from the EU, bringing the loss to 50 per cent with which the industry must grapple.
Guysuco plans to mitigate the projected losses by maximizing on the revenue to be obtained from the sale of sugar elsewhere — packaged sugar in particular. “The price that we receive for packaged sugar, however, is very much dependent on the world market price for sugar,” the corporation said.
The correspondence indicated that the company will also continue to look at ways and means by which value-added can be improved and costs reduced, and these are key outputs and objectives of the turnaround plan.
In response to the company’s projections, President of the Guyana Agricultural and General Workers Union (GAWU) Komal Chand said that the union would need to look at the numbers to know what the depreciation of the currency that the sugar is traded in will have on the industry for the year and for next year. He explained that for the industry, the year starts on October 1 and ends on September 30 the following year. “We need to know what are the quantities shipped and the quantities remaining to be shipped [then], we will know what the drop in revenue is,” Chand said.
He said that Guysuco has hedged their sale of sugar to the European Union at €1 to US$1.35. “We need to know what is the quantity shipped and what date the hedge was made”, Chand said. On Friday, Chand said that at US$1.23, the euro has marginally improved from where it was about two weeks ago, when it was tagged at US$1.20 per unit.
Chand said too that in 2005, the euro was traded at US$1.23 a unit and Guysuco “did not have a problem.” At the time, he said, the 36 per cent cut in the European Union preferential price had not yet taken effect. Production back in 2004 and 2005, he said, was healthy. “It also has to be production; production is too low for the capacity of the sector. Production should not be so low”, he said.
“If production is low this year and the euro [continues to decline], then the industry will be seriously affected. They need to make their target of 280,000 tonnes. They said that they will make it. They will try to blame El Niño if they don’t. Guysuco should be held accountable if they don’t make the target or a variation of five percent up or down”, he said.
In an interview last month, Deputy Chief Executive Officer of the Guyana Sugar Corporation Rajaindra Singh told the Guyana Chronicle that he was confident that the corporation will achieve its sugar production target of 280,000 tonnes this year. He said that although the dry weather is responsible for a modest first crop, field management work that began last year will lead to a large second crop.
He said that a number of interventions will see the realization of the target, and that in addition to capacity building in critical areas, the company should benefit from preparatory work done late last year and early this year.
In 2009, the corporation was only able to produce 233,000 tonnes overall.  For 2010, it fell short of its first crop target of 91,675 tonnes, achieving only 81,864 tonnes. Further, the corporation in 2009 achieved a first crop of 83,289 tonnes. The target for the second crop – to commence around the end of July – is 190,000 tonnes.
Teetee Zwane, writing in the Swazi Observer on June 9, 2010, said that sugar exporters have been advised not to panic as yet, following the recent sharp depreciation of the euro. The newspaper quotes Economist, Christopher Fakudze, who said even though the weaker euro was a cause for concern, especially for Swaziland’s sugar exporters, there was no need for panic as yet, because this could only be a temporary or short term situation. “Depreciation of the euro is obviously a huge blow, because we benefit from exports, especially as we mostly sell sugar to the European Union,” he was quoted by the Swazi Observer as saying.
“To make matters worse, this crisis adds salt to injury in terms of its contributing to a further decline of revenue as a result of the price cuts that were effected by the EU as part of the new sugar regime.
“In any case, if the exchange rate was higher, we would at least be able to break even from the little sales revenue we’re currently getting. So yes, a weaker euro is a major blow to the sugar industry”, he said in the June 9, 2010 article.
According to the article, Fakudze said this scenario would not only affect Swaziland but also other African, Caribbean and Pacific (ACP) countries exporting to Europe and it could hurt the economies of these countries drastically.