Let’s say that Guyana could buy sugar from another country to resell for local consumption at prices near present store prices.  Should the sugar industry be exited – scrapped? Or should the industry just be “privatized” as the main opposition presidential candidate stated is his intention – sold off for the best bid to whichever local or foreign interest envisages it could run a leaner ship.

Albeit finding such a buyer may prove difficult, if you accept supporters of this idea’s assessment concerning the industry’s ability to turn a profit, or the industry’s contribution to the common good of the country.  In fact, based on this assessment you’d have to question the foresight of any bidder – even if the industry were put up at fire-sale prices.

What about rum production?   Say the country could find outside sources from which to buy molasses for rum production.   Is this something two of the largest local companies, Banks DIH and DDL, should be thinking about given the uncertainty either option introduces? (And what would become of the El Dorado brand, which has chalked up eight or nine gold medals in recent years, both in the US and Europe?) 

The future of Ethanol and bio-mass development in Guyana would be setback.  There wouldn’t be a GuySuCo training school at Port Mourant turning out some of the best trained diesel mechanics in the trade (Transport Canada would attest to this).  Other small businesses and support sectors for the industry would be equally dislocated.

It’s not that those on the other side of the issue are completely wrong about the daunting challenges facing the industry.  What they’re wrong about is the course of action to take, having the fortitude of sticking to a long-term strategy with significant commitment, and the vision to see beyond the immediate circumstance.  Quitting is simply not an option.
Some sense of the far-reaching significance of sugar to Guyanese society is revealed in a brief by GuySuCo, in which the company noted that the sugar industry employed 25,000 directly and indirectly, providing  livelihoods for at least 125,000.  They pointed out that community services and infrastructure in the country areas depend on sugar. And that the industry provides rural stability and keeps in check the increase in urban overcrowding with its attendant problems

Let the Trinidad experience speak for itself in the following clip from this Sunday’s edition of the Trinidad Guardian newspaper titled, Barrackpore shattered community of the sugar belt:

Now, eight years down the road, once stable families have broken up. Many of the sugarcane workers and cane cutters have died from heart disease, hypertension, kidney failure, diabetes and other stress-related illnesses, while some women have even admitted to selling their bodies to feed their children.  In this feature senior journalist RADHICA SOOKRAJ looks at the difficulties people face in the community of Barrackpore, after the sugarcane industry was discontinued.

Whether or not sugar accounts on average for 17% of GDP and more than 20% foreign exchange, or 5% of GDP on rebased statistics is not material.  Although, for those who are interested, it can be shown that as a decision-making measure, the 5% number does not fully talk to sugar’s average overall inflows either currently or on a forward expectation basis.  The numbers do not reflect the recently announced US$27MM grant from the EU and the further US$106MM committed through to 2013 to help transition the industry in recognition of the massive disruptions from the 36% cut long in[the] long-standing treaty agreement.  That these payments are received directly rather than in the sugar price may be more of an accounting matter as to the overall result.  Other dynamics such as the impact on the base of recent very favourable moves in rice and gold prices cloud the numbers.  But as stated, in the overall this is not a make or break consideration. 

In the face of the realities of the situation, a great amount of energy has been poured into developing a long-term strategy to maintain the viability of the industry by improving productivity and reducing cost – a plan that will succeed given time, patience and persistence.

The centre piece of the strategy is the new state of the art factory built at Skeldon with a capacity of 8,400 tonnes cane per day (half of the cane is to be supplied by farmers) and a 40 megawatt co-generation plant (equivalent to about 1/3 of GPL’s installed capacity). The US$200M investment required to build the factory is the largest single investment Guyana has ever made.

Other elements of the plan include diversifying, adding value through branded sugars (such as the Demerara Gold brand), alcohol production and expanding markets in CARICOM and elsewhere. The Skeldon investment was complemented by the completion of the US$12.5 million Enmore Packaging Facility and upgrades to the Enmore Factory,

The plan foresees a 10-year horizon over which the restructuring and modernisation programme would reduce Guyana’s production costs from US 17 cents to US 9 cents per pound, allowing Guyana to be cost competitive with Brazil, the largest exporter in the world at US 8.6 cents per pound.

Construction of the plant was begun but its completion ran over the time allotted, which in turn threw off the planting schedule.  Cane can’t lie in the field until the plant is ready.  So when the factory finally came on stream there was not enough available cane supply resulting in the factory initially running far below capacity.  There were also other technical problems.

But things now appear to be coming into stride after a good bit of teething problems.  Last year GuySuCo inked a deal to provide an average of eight megawatts of power to GPL for distribution to the Berbice grid (a benefit that probably won’t be captured as sugar revenue in GDP).  The co-generation not only boosts our electricity generation capacity; it reduces our dependency on costly hydrocarbon fuels and is an important demonstration of our commitment to help reduce global warming.

GuySuCo CEO Paul Bhim also recently announced that the damaged boiler was repaired.  “The [Skeldon] factory will be boosted by the returning into operation of the number one boiler in the second crop of this year. That would enable [our capacity] to increase and be able to take all the canes in Skeldon, and there are a lot of canes in Skeldon,” he said at the commissioning of the new packaging facility at Enmore dubbed Project Gold a couple of weeks ago.

These are good signs.  But there are other issues still to deal with.   There are reports of low worker turnout on the one hand and a need for further mechanisation on the other.  There are also wild-cards.  There is an opinion that the Brazilian Real is undervalued with respect to the US dollar.  Being the largest sugar exporter in the world, any upward revaluation of the Real could see Guyana become price competitive sooner than expected.  Of course the reverse also holds. 

Meanwhile, there have been almost gleeful headlines in the media announcing: If Skeldon fails, sugar is dead.  Those rejoicing at this prospect seem oblivious to the fact that if this happens they will surely also feel the ripple effects.  The social costs to the country would be far greater and longer lasting than any operating deficit that the industry may occur in one year or the other.  One only needs to look back at the Linmine sale, and the after effects including the direct subsidy of over US$3MM a year paid by the central government into the town (most of which, incidentally, was funded by a sugar levy).  Today, 20 years after privatisation, Linden is still being subsidised.

So having sunk a tremendous amount of effort and resources into the restructuring plan, and with some light now visible at the end of the tunnel, does “privatising” seem to be a well thought out call?

Moreover, the Trinidad situation with the closing of state-owned Caroni indicates that privatising may not be possible, and reveals the privatisation track to be a slippery road with the high probability of defaulting onto the exit ramp.  And we have ample examples of that route’s resultant social consequences and financial devastation.