Dear Editor,
Tarron Khemraj’s article entitled ‘President Jagdeo and the notion of productivity’ in the Stabroek News of November 26 presented a plethora of issues that can be debated; however, in the interest of time and space I will focus on two of the issues, firstly on sugar and secondly on productivity.
Mr Khemraj predicts the demise of sugar in Guyana and presented two main arguments in support of this position. Firstly, he claimed that the price of sugar has not done well over the decade because of the number of substitutes, and secondly people – Caricom nationals, etc – do not consume more sugar in proportion to their increase in wealth. I think both of these arguments are seriously flawed.
First the price of sugar: I guess he is referring to the world market price of sugar which has ranged between 7-10 US cents in the last decade.
This price is not the best yardstick to measure sugar since more than ninety per cent of sugar is traded at a price over the world market price in a protected market and represents the price of residual or dumped sugar. Further, despite the fact that only twenty-five per cent of global sugar production was traded internationally, sugar remained the most traded of all commodities. Sugar like other commodities has been the victim of the vagaries of the global commodity boom-bust cycle. True, sugar has been volatile due mainly to a complex mix of production and direct subsidies to given producers, mainly in the United States (US) and European Union (EU) that distort prices, however, I will not go into details on that price structure at this time.
On the issue of price and substitutes, the high fructose corn syrup (HFCS) or artificial sweetener was the answer to the high sugar price in the ’70s. However, Borrel and Pearce pointed out growth in artificial sweeteners had reached its limits in Europe, US and Japan and was now significantly curtailed and absorbed. Almost ninety-five per cent of sweetener is dependent on sugar. It is also why the US has even violated its own NAFTA commitment to prevent its neighbour and NAFTA partner Mexico from exporting sugar freely to its market.
Mr Khemraj argued that people as they get richer do not necessarily consume more sugar in proportion to their increase in wealth. Borrel and Pearce research (1999) shows that the consumption of raw sugar has increased in developing countries from 66 per cent in 1980 to 76 per cent in 1998. They further pointed out that gains from the liberalization of the market will see a global gain of $6.3 billion. It is anybody’s guess why the EU is the largest importer and exporter of sugar. Further, even Brazil that went to the WTO tribunal on production subsides provides over one billion dollars in subsidies to its consumers and there are many others that also distort market prices.
With regard to Caricom, the single market gives Guyana sugar a clear comparative advantage, not only because of the CET 35 per cent tariff but because of a low and competitive freight rate of $25-$30 per tonne, and if Haiti is added to the market with its demand of 80,000 tonnes, even better. There is even the Caricom demand for 160, 000 tonnes of white refined sugar that is also up for grabs since the closing of the Caroni refinery in Trinidad and Tobago. A refinery will benefit manufacturing industries in Guyana.
Former CEO Brian Webb identified some clear-cut strategies for bringing down the cost of production from 17 cents to around 8 cents in the 1998-2008 plan with economies of scale. That is, the doubling of input will more than double output.
There would be production of over 400, 000 tonnes that can find ready markets under the plan. I do not have any information on the new Skeldon factory with its current teething problems, so I will not comment or pass a judgment on something I have no information on. However, based on all the studies I have seen so far, sugar still has what economists call the best “Domestic Resource Coefficient” (DRC), and even the study by the ACP identifies Guyana among the highest percentile group in sugar production for the ACP region, and sugar remains a viable option even with the demise of the preferential market. I will not touch on higher value-added products from sugar – molasses and bagasse that make it an even more viable option.
Colonial sugar enjoyed a preference in the UK market since the earliest times. In the years 1830-1840 that preference was ₤39 and since then beet sugar was experimented with to replace cane sugar.
In the literature, opinions are divided on the benefits of the preferential access; for instance, the study by Esteban Perez of the United Nations Economic Commission for Latin America and Caribbean (ECLAC) (2003) shows how preference kept countries in a state of underdevelopment under different restrictions. Professor Thomas in his regular weekly column in Sunday Stabroek pointed out that any administered quantative restriction on market access for a commodity with or without a guaranteed price, creates an economic rent and raises its price in the relevant market so the guaranteed price is by no means a hand-out by the EU. Further, a process of tariff escalation was nicely crafted by the EU and US to discourage value-added products from sugar, cotton, cocoa and even bananas from being exported by the ACP countries.
Finally, centuries ago Adam Smith in the Wealth of Nations (1776) wrote, “it is commonly said that the sugar planter expects that rum and molasses should defray the whole expense of his cultivation and that his sugar should be clear profit.” Cane sugar has always been a viable option to beet sugar and artificial sweeteners that enjoyed generous financial support. I have been able to deal with most of the issues raised by Mr Khemraj in a simple letter, but I will come back to it later, or when we meet again in person. Finally I make no apology nor excuse for those responsible for bringing the sugar industry to its current state, but I strongly feel it is still a viable alternative with its backward and forward linkages.
Yours faithfully,
Rajendra Rampersaud