Introduction
The process of consolidating and centralizing capital and other productive assets in Guyana’s sugar industry reached its apogee with the establishment of GuySuCo in 1976. This brought under one umbrella two foreign-owned sugar companies (Bookers Sugar Estate (BSE) and Jessel Holdings) under state ownership.
A relatively small (8 per cent) private cane farming sector stood alongside this. At the time this was a positive decision, as a centralized GuySuCo was poised to reap considerable operational efficiencies.
Chief among these were 1) economies of scale in management and administration; 2) significant enhancement of the industry’s ability to harness skills and expertise; 3) a marked advance in the industry’s ability to rationalize the use of its technical skills; 4) economies in training; 5) better- focused research and development (R& D); 6) lower financing costs; and 7) marketing economies, especially overseas (even though the state carried a significant portion of these costs because of the European Union (EU)-African Caribbean Pacific (ACP) Sugar Protocol framework).
This list is not intended to be exhaustive. My judgement is however, that all these potential gains have been eroded through GuySuCo’s weak management, poor decision-making, and the pressures of excessive outside political leadership of the corporation by the government. Complicit management carries much of the blame for this.
A range of proposals have already been placed before the public and I shall examine four of these after I first state my own recommendation, which is outlined in a number of steps below:
Step 1: Re-bundling
GuySuCo’s assets
The most crucial element of my proposal recognizes that while a centralized state-owned GuySuCo made sense in 1976, such a model has become dysfunctional today. Having outlived its usefulness, this model remains an albatross on the back of the economy, impeding its growth and preventing the diversification of vital agricultural assets.
It is imperative therefore, for GuySuCo’s assets to be deconstructed and re-assembled into flexible, innovative, and dynamic units/bundles/ clusters which are then made available for producing whatever is best dictated by market opportunities, and not tied to sugar production.
Step 2: New bases
These new units would be constructed around either: 1) existing estates; 2) carefully designed geographic and settlement areas; 3) nodes of ongoing or proposed economic activities; 4) entrepreneurial- investor interests; or 5) some combination of 1-4. These re-assembled units should then be packaged and made available to suitable investor groups, based on their proposed business plans, which may or may not include full or partial continuation of sugar production.
Step 3 – Carve-out
One definite carve-out from this re-bundling exercise should be the Skeldon project area. This is still recommended because of 1) the huge sunk-costs already made there (about US$200 million at 2000 prices); 2) its agro-geographic conditions which gives lowest unit cost for producing sugar; and 3) the long-run sustainable market opportunities for selling this volume of sugar at premium prices.
The market opportunities referred to at (3) are to be found in the domestic market, the Caricom market, and the USA tariff-rate quota market.
All three of these markets have firm long-run legislative and institutional support, which at this stage requires no further elaboration.
Readers of this column would know that the Skeldon Sugar Modernization Project (SSMP) has targeted the area’s sugar output at 166,000 tonnes annually, with cane production at 1.1 million tonnes per year.
It should be noted that this volume would just about satisfy the markets listed above when fully developed. In any event, if more sugar is needed there is scope for further low-cost expansion via a modernized, expanded and refurbished Albion-Rose Hall complex.
Step 4: Business
profiles
The units put on sale should be supported with government’s preparation of specific business profiles and pre-feasibility project appraisals, designed to encourage investors/ entrepreneurs to think creatively about the best possible alternatives for the assets they may wish to acquire, given that there is no stipulation that they continue in sugar production.
In order to strengthen the attractiveness of these new bundles of assets or to sweeten the pot, as investors term it, these business profiles should emphasize the potential for diversification.
Already in this regard, a number of creative options have been indicated in the media, including: aquaculture; ‘other’ agricultural produce; housing; agricultural tourism; and a variety of recreation activities. Readers should constantly keep in mind that generally the estates command a rich mixture of assets situated on the rural-coastal belt: well drained and irrigated lands; a network of waterways whose alternative commercial uses have not been explored; housing; electricity; community and recreational facilities (parks, horse-riding trails and so on).
Step 5: Potential investors
One question readers may ask at this stage is: should there be any limitations as to the type of potential investor? The straightforward answer is no. The potential investor pool could include local, regional and international investors, along with stakeholder groups such as farmers and worker organisations both inside and outside the industry, as well as the general public (as shareholders!).
Step 6: Detailed study and caveat
The outline proposal sketched here, as well as others placed before the public should be the subject of detailed study and recommendation from a special task force on restructuring the sugar industry. This task force should comprise a broad spectrum of experts and stakeholders, as well as political-social interests.
This leads to a very important caveat. Without prior agreement to treat sugar industry reform as a national non-partisan issue, successful reform is a non-starter. My proposal requires, therefore, prior agreement and consensus (government and opposition) to address changes in the industry. My professional judgement is that the best prospect for achieving this lies in the formation of a Government of National Unity. This, to my mind, is the only sure way to avoid the sugar industry continuing to be treated as a political football.
Next week I shall continue this discussion.
