Sugar has always been an intensely political commodity. Financial fortunes and the fate of governments have been determined by its rise or fall. It has a history that continues to haunt the region. But despite its past, there are indications that a renewed sugar sector could once again have a viable and strategically important future – that is if it is able to be rationalised and transformed so that its future is primarily industrial.
That sugar has a future, flies in the face of sentiment among many in the region and beyond. They see the industry as being in terminal decline, representing the past and as having an uncertain outlook as a result of the swingeing price cuts imposed by Europe in 2004 on preferential imports from Caribbean and other sugar producers in Africa and the Pacific.
They note that much of the industry is in dire need of new management and rationalisation. They argue that if it has any hope of survival it must become viable through the adoption of private sector practices with consequent efficiencies, irrespective of the nature of its ultimate ownership. They use the decision of St Kitts and Trinidad to close their loss-making, make-work industries to illustrate the future.
They may be right if the debate is about producers of small quantities of raw sugar cane. However, there is now a real interest among investors in the possibility of restructuring sugar industries across the region. They see ‘new sugar’ as being multifunctional in an industrial rather than an agricultural context.
For this reason a number of major companies see cane grown in the Caribbean, if produced competitively, being used for a mix of purposes. These include the production of bio-ethanol for sale to the US and Europe under preferential arrangements; as a fuel source as bagasse for the generation of electricity; as raw sugar for export to the US and EU markets; its use in a number of value added ways such as the production of molasses in locally branded rum; and as a gasoline additive for domestic use in vehicles within an appropriate regulatory environment.
So interesting have the possibilities of industrial complexes around sugar become that in Jamaica, where the industry has been structurally weak for some time, five private companies are bidding to purchase Jamaica’s state owned sugar estates: local companies Wray and Nephew and Gibson Energy, Coimex from Brazil, Angostura from Trinidad and Dhampur from India.
The potential is such that the Jamaican government is using some of the money from its Petrocaribe oil arrangement with Venezuela to restructure and address the debt problems of the estates that are for sale. It will also apply elements of the painfully slow-disbursing European support package agreed in 2004 to continue its actions in support of the industry.
While Guyana, Belize and Barbados are approaching their restructuring from different perspectives they too are looking at how an industrial solution will ensure future viability.
To understand why this potential change in the industry’s fortunes has come about one has to look at what has been happening internationally.
Firstly, the rapid increase in energy prices over the last two years and global uncertainties about its supply has changed thinking in developed nations about the long term price of energy and the security of supply.
Secondly, the upward trend in world energy prices has lifted the price of sugar, molasses and ethanol to levels that make each potentially attractive as a part of an integrated industry; a process contributed to by hedge funds and private equity entering the commodities market.
And thirdly, growing awareness about the environment and the need to reduce carbon emissions has made the growth of alternative energy sources of economic and political importance.
What this means is that sugar has the potential to become a strategic commodity not as a food but as an alternative energy source. If this sounds unlikely one has to look no further than the discussions taking place between Brazil and the United States. For much of the past week the two nations have been discussing the creation of an energy partnership that they hope will encourage ethanol use throughout Latin America and the Caribbean. Ethanol demand is surging and the US and Brazil, the world’s two largest producers, are unable to keep up with demand. The two nations have been discussing an agreement on technology transfer that would stimulate production and according to experts would result in the medium term in a consequent new global market for internationally traded ethanol, driven from the hemisphere.
It seems that within a year the agreement would result in the US and Brazil sharing technology that will then be made available to enable others throughout the hemisphere to become both ethanol producers and consumers. For Brazil it is a ringing endorsement of a decision taken in the 1970s to invest in biofuel technology so that today forty per cent of its non-diesel consumption is bio-ethanol and seventy per cent of its vehicles are flex fuel models.
Although Brazil’s interest is fundamentally economic, the US also sees this new policy initiative as a way to lessen the influence of Venezuela and Bolivia over the hemisphere’s oil and gas supplies. The little understood consequence is that Washing-ton is in the process of recasting its hemispheric policy in the context of a new energy security regime.
Meanwhile, in the Caribbean the arguments go on about access to the European market under the sugar protocol and how best to restructure the arrangements in the light of an Eco-nomic Partnership Agreement (about which more next week).
The seismic global shifts taking place in the relationship between sugar and energy security argue for the debate in the Caribbean to be much wider than this. A good start would be in better presenting the case for sugar as an industrially integrated industry with long term value for the region.
Previous columns can be found at www.caribbean-council.org
