Introduction
The gravamen of last week’s discussion of the technological developments pursued by Booker Tate and GuySuCo in the area of cane cultivation is that these were expected to proceed hand-in-hand with technological improvements in the factories. This complementarity, is of course, essential, if overall industry efficiency and a lower unit cost of producing sugar are to be realized.
As presented, two main rallying cries have led the charge for these agricultural improvements. One has been for the substantially increased role of private independent cane farming. Thus, the planned success of the proposed Skeldon (and later Albion) estate – expansion projects were heavily reliant on this strategy. To date, however, GuySuCo’s expectations have not been met.
The second rallying cry has been for the rapid mechanization of the estates. The high and rising cost of labour, along with its weak supply, low turn-out, and industrial stoppages, have combined to push GuySuCo in this direction. Over the years it has seen total employment cost rise sharply, as shown in the table below. Indeed in the first three years (after the PPP/C administration had taken control of GuySuCo (1992-1995)), total employment cost rose by 60 per cent. And, between 1995 and 2008 it had more than doubled.
GuySuCo Sugar Operations: Total Employment Cost (Selected Years) (G$ billion)
Year Total Employment Cost (Bln. $)
1992 4.9
1995 7.9
2000 12.4
2005 14.7
2008 17.6
2009 15.6
Source: GuySuCo Reports
‘Prags‘
Unfortunately for GuySuCo, it was not only employment cost that has been rising sharply. During the decade of the 2000s, total spending on materials and services rose from $8 billion in 2000 to an estimated $20 billion in 2010. For the period 1992 to date (when the PPP/C administration has been in charge of the state-owned and controlled GuySuCo) over $170 billion has already been spent by GuySuCo on materials and services.
Of particular concern is the widespread belief that GuySuCo’s spending over the years has been the source of some of the most outrageous abuses of public spending in the history of Guyana. GuySuCo is seen as the fount of the most brazen ‘prags.‘ Recent interviews given by its top executives, as reported in the Stabroek News, confirm some of the worst fears. These interviews are replete with references to “outdated procurement systems,” “lack of transparency,” questionable “ethical, moral and legal standards,” “excessive use of middlemen” and “insider bias.” Of course, the executives consider these to have been typical concerns about “past” practices. Their suggestion is that the new focus on procurement efficiency and the recent publication of a procurement manual would address these excesses.
For readers’ convenience, the table below summarizes the data on GuySuCo’s expenditure for materials and services (1992-2010).
GuySuCo Expenditure: Materials and Services (G$bln) (1992-2010)
Year GS(bln) Year G$(bln)
1992 7.0 2001 7.3
1993 6.4 2002 7.5
1994 6.7 2003 7.8
1995 8.5 2004 7.2
1996 9.7 2005 8.4
1997 8.5 2006 9.5
1998 8.3 2007 9.0
1999 9.3 2008 10.9
2000 8.0 2009 10.6
2010 20.0 (est.)
Source: GuySuCo Reports and Stabroek Business for 2010 estimates.
Marketing
Because the cost of producing sugar in Guyana (and the wider Caricom region) has been for many years during the past two decades as much as four times the ruling world market price for sugar, Guyana’s raw cane sugar export industry (and the wider Caricom region) could not have survived based primarily on sales to the world market. Its survival has been fundamentally dependent on export sales to the ‘protected‘ markets of the European Union (EU), United States, and Caricom. Of these markets, the EU’s has been by far the most lucrative, accounting for three-quarters and more of the region’s export sales.
While during the 1990s there have been two distinct segments of the EU’s sugar market to which Guyana sold its raw sugar, by far the most important (accounting for 92 per cent of the volume of sugar sold to the EU) has been the Sugar Protocol sales under the European Commission (EC) – African, Caribbean and Pacific (ACP) Sugar Agreement. The remainder of the sales (8 per cent) was made under a Special Preferential Sugar (SPS) 1995 sales agreement, negotiated specifically to supply raw sugar to European refineries as a result of new countries (Portugal and Spain) joining the EU. Unlike the Sugar Protocol this agreement was intentionally short-lived – six years in the first instance (July 1, 1995 to June 30, 2001) and later extended until 2006.
The EU-ACP Sugar Protocol is a direct descendant of the Commonwealth Sugar Agreement (CSA), which Britain had established with its colonies in 1951 in order to protect its sugar supplies from being disrupted at times of crisis, as was threatened during World War II. The CSA provided fixed quotas for colonial suppliers, with 745,000 tonnes initially allocated to Britain’s West Indian possessions.
The CSA lasted until 1974, when Britain (along with Ireland and Denmark) joined the European Economic Community (EEC). One condition for Britain’s entry into the EEC, was the negotiation of the CSA into a European-wide, Sugar Protocol (1975). Readers should note that the Sugar Protocol was simultaneously a part of, yet remained separate from, the more comprehensive trade and aid package of the Lomé Convention, which also came into force in 1975.
Next week I shall examine the key terms of the Sugar Protocol and what has since replaced it, as a result of EU sugar reforms and the coming into force of the Cariforum- European Union (EU) Economic Partnership Agreement (EPA).
