Diversification in and out of Sugar
This week I finish my examination of the sugar industry that I had started 20 weeks ago (May, 29, 2011). In last week’s column I had outlined a proposal to guide the transformation of GuySuCo from what is an intrinsically archaic centralized state-owned corporation producing mainly sugar into a number of potential investment units/bundles/clusters, which are structured around either 1) existing estates as separate entities 2) carefully selected geographic and settlement locations 3) other nodes of economic activities (on-going or projected) 4) declared investor interests or 5) some combination or all of the above.
However, I was at pains to emphasize that the Skeldon Sugar Modernization Project area (SSMP) should be carved-out from this proposal. This area should remain primarily in sugar production because of the humongous costs already sunk in the project. There is the further consideration that the Skeldon area is potentially the lowest unit cost producer of sugar because of its favourable agro-geographic features and should remain attractive for private independent cane farmers. This carve-out area stays in sugar production and should be able to produce enough sugar to satisfy Guyana’s remaining premium markets. These are: the domestic, CARICOM, other regional, and USA tariff-rate quota market.
I would stress that, the proposed investment units, which are put up for sale would carry with them no stipulation whatsoever requiring the purchaser to continue in cane/sugar or related production. Diversification into other cane/sugar products (e.g. energy, ethanol, juices) or out of cane/sugar altogether is entirely possible. The future course of action investors take after acquiring the assets should be based entirely on their own private sector risk-reward assessments. No government subsidization should be afforded.
The question which may be asked at this stage is: what are the risks involved in this proposal. To my mind two stand out. First, we may find that there are no adequately –financed investor groups interested in the re-bundled GuySuCo assets. The worse thing the Government can do in such a situation is to engage in a “fire sale” of the assets. This would not generate quick absorption of labour into productive employment, but rather may encourage purchase and holding for purely speculative purposes.
The second risk (and to my mind the worse) is that the backward crony capitalist class in Guyana may want to snap up the assets for speculative and criminal rent–seeking purposes. As cronies of the regime, they might secure preferred access to the assets being sold, and with their ties to organized crime I can envisage a number of criminal endeavours these assets would support (including money laundering and related crimes).
It should be kept in mind that my proposal calls for the establishment of a Task Force on Sugar Reform. It is my expectation therefore that this Task Force would be technically and commercially equipped to evaluate all proposals for the reform of the sugar industry.
I shall conclude this column with very brief comments on four other proposals. Before I do so however, it is worth noting that coincidentally the Government of Cuba has dismantled its powerful Ministry of Sugar in order to propel the de-construction and re-bundling of those assets tied up in the centralized production of sugar in that country.
Other Reform Proposals
One of the proposals out there is the call for the immediate curtailment of sugar production. I would presume by this is meant, the orderly closure of the industry. While I am sure the intention here is to stop the bleeding at GuySuCo, in my opinion any abrupt closure would cause great dislocation if no strong efforts are simultaneously directed at productively utilizing the released assets from GuySuCo.
A second proposal out there is to put up GuySuCo for privatization. The main weakness of this proposal in my view is that it makes no effort, as mine does, to steer the future direction of the agricultural assets controlled by GuySuCo. This proposal also ignores the local political-social-industrial context and the large social costs required to transition the labour force to other jobs, as it is released from GuySuCo.
A third reform proposal, which has been canvassed is the call for the government to re-engage an external-based management group (other than Booker-Tate) to run all or selected areas of GuySuCo. The selected area most often cited is the Skeldon estate. Two external firms, one with the contract for the Sugar Packaging Plant at Enmore (Indian) and the other for the Skeldon factory (Chinese) have been named. The painful experiences Guyana has had with the Booker-Tate management contract are too recent for the public (including sugar workers and their unions) to support a policy that has failed so badly, particularly when legal issues related to it are still before the court.
The fourth and final proposal I would mention here is the call to devalue the Guyana dollar. If the Guyana dollar were to be devalued (and depending on the size of the devaluation) this would infuse substantial Guyana-dollar income into GuySuCo. This policy proposal is not as esoteric as it might sound. Ever since the devaluation of the Guyana dollar from 39.5 Guyana dollars to one dollar US in 1990 to the current rate of about 204 Guyana dollars to one US dollar, devaluation has played an immense part in support of sugar and GuySuCo.
My main concern with this proposal however, is two-fold. First, it could lead to major macroeconomic disruptions (including inflation) as import prices (and the cost-of-living) will be severely impacted by a significant devaluation. Second, such a policy would shift relative prices against the non-trading domestic sector, which would be inadvisable at this time of severe global economic and financial crisis.
Readers have suggested several topics for me to engage next. Starting next week, I shall treat with several of these, but only engaging those I can deal with briefly, in order to be able to cover a larger number of topics in the coming months.
