The Economy: A review of the White Paper on the future of the Sugar Industry
In light of the recent revelations in the press that thousands of sugar workers are going to be jobless by the end of this year – which is in a few weeks’ time – is a devastating and extremely sad state for those people and the entire country at large. These moves, are all in keeping with the State White Paper presented earlier this year, by the Agriculture Minister, to parliament.
As alluded to last week, the author of this column previously critiqued this document heavily, and given the appropriateness of recent events in this respect; today’s edition is centered on a synopsis of the review of the “White Paper” which the author of this column had previously conducted – in the context of budget 2018 and its far-reaching economically devastating consequences.
The very first section of the paper carried the caption – “The future of the Sugar Industry”. This section comprised only three very short paragraphs. The first paragraph made two statements or highlighted two points that are widely known – it states that “the Guyana Sugar Corporation Inc. is a wholly owned state enterprise, and instead of being self-sustaining and contribute to the revenues of the state, has encountered severe decline.” The second paragraph spoke about the declining production of the entity. The third and final paragraph under this section highlighted the amount of subsidy that the government had to provide and the amount of debt incurred.
A careful examination revealed that these are all historical information. So where is the future plan? It is ironic and hilarious that the section of the paper with the bold heading – ‘the future of the industry’, has in it, not a single word or phrase mentioned about the future direction of the state-owned entity.
The next section that followed in the paper was dedicated to the evolution of the industry. Seven short paragraphs dealt with this and of note – the nation is well aware of the evolution of the sugar industry in Guyana.
The section that followed carried the caption – “Economic Challenges”. In this section, again, the known challenges were highlighted including an acknowledgement of the fact that GuySuCo needed an urgent injection of $12 billion in 2015, and failure to act in this regard, would have resulted in disastrous consequences to not only the industry but the economy at large, since about 16,000 employees and 48,000 dependents would have been adversely affected immediately.
Under this section too, one would realise it simply regurgitated the challenges of Guysuco. The problem with this section is such that, in no way did any mention was made on answering the questions – what did the management of Guysuco did over all those years to overcome its challenges; what measures were undertaken; how and when were they implemented; what were the results; what monitoring and evaluation mechanisms were put in place? If any.
The paper made reference to the fact that the sugar industry operated largely in a protected market from 1959 to 2009. The European Union market had accounted for 50 percent of the industry’s sugar output and 70 percent of its revenue. Subsequently, a decision was made by the European Agriculture Council to reduce the guaranteed price for sugar by 36 percent over a four year period that began in 2006.
The logical questions, therefore, are, since four years notice was given within which the protected market price arrangement had virtually come to an end and gradually phased out over this period, what did policymakers do over this period to now to secure new markets – enhance the efficiency of the industry – and reduce production cost through economies of scale and diversify the industry? These are all, crucial questions – which ought to have been addressed in a white paper.
On page 4 of the document, it was stated that, “The Government is cognizant of the invaluable contribution of the sugar industry over the years”. The key words here are – ‘cognizant’ and ‘invaluable contribution’. If a government is aware of something that is invaluable, why would that same government dismantle and destroy such an instrument? If we are destroying this invaluable system, what are we replacing it with? Oil? The emerging oil and gas sector will not create or guarantee employment for 16,000 persons – unemployed sugar workers. Overall, the paper did not address the far-reaching economic and social impacts – the biggest flaw of the document.
By downscaling the industry there will be no certainty in transforming the livelihoods of the thousands of persons anticipated to be affected, into predictable stable financial family units. It is stated that the sugar workers will be given access to land for other agricultural purposes. But, this has to be carefully and thought out and form part of a wider transformative and economic development plan, for the reasons stated hereunder.
The process to convert cane lands into alternative agricultural lands will attract a financial cost to do so, which sugar workers and farmers will certainly not have. Consideration must be given to what other crops will be planted – there is excessive production of the common provisions and cash crops and lack of export market for these produce is another concern. In addition, without value added mechanisms in place, excessive production will ultimately lead to wastage and depressed pricing.
Government subsidies to key economic sectors – to upkeep economic goodwill and sustain the livelihoods of thousands and millions of people, is a common practice by Governments all over the world in keeping with a Government’s prime responsibility on economic matters of national importance. For example, in the United States, the U.S Department of Agriculture expends about US $25 billion annually in subsidies for farm businesses – of which approximately 1 million farmers and landowners benefit from this. India is another country that expends hundreds of millions on Agriculture subsidies in addition to other subsidies. In fact, according to data published by the World Trade Organization, Northern countries together – expend about US$300 billion in Agriculture subsidies annually.
It is worthwhile to mention that the United States in the late 19th and 20th centuries, with the rise of an industrialized economy, U.S. agriculture began to decline. After World War I – the fall in product prices led to legislative proposals to help farmers. Under this arrangement and during the Great Depression, the Agricultural Adjustment Act (1933) was enacted to improve the economic situation for farmers.
Against this background, with such global exemplars with regards to government subsidies, that is, why is the Guyanese Government crippling the sugar industry based on what is unarguably considered to be their most laughable excuses – designed to destroy the industry and livelihoods of thousands of people?
In a nutshell, the closure of more estates will cost the economy in excess of $30 billion annually; government revenue from taxation will reduce dramatically due to a depressed economy; GDP growth for 2018 may be less than 2 percent; non-performing loans will increase drastically as more than 3,000 householders will be unable to service their loans and mortgages; thousands of persons will even lose their homes as a result; and a possible negative economic growth for 2018.
*The author of this column is the holder of a Master of Science Degree from a UK university in Business Management, with specialism in Global Finance and Financial Markets.