Dear Editor,
More than 100 countries produce sugar and every single one of them enjoys some form of government subsidy or concession. These are direct price controls, import restrictions and tariffs, export perks, soft loans, low interest loans, debt forgiveness, reduced tax rates, special concessionary facilities, access to write-offs, preferential terms, mandatory by-product industries (such as Brazil’s ethanol industry) which force consumers to subsidize sugar by buying these products such as ethanol, direct payments to the industry, guaranteed inflated pricing for domestic producers, mandatory higher local consumption prices, sales limits, government grants, debt restructuring, etc. These practices led to the explosion of world sugar production. In fact, most experts peg current sugar world prices at about half of the average world cost of producing sugar. That should put the actual worldwide cost of producing sugar without the influence of governmental subsidies at around US 32 cents per pound.
That is how significant governmental subsidies are on sugar worldwide and how pervasive they are in fixing prices and propping up local sugar industries. The irony is that even as these subsidization practices have played a significant role in depressing prices worldwide, governments are still maintaining and expanding subsidies to their struggling industries, leading to further dumping and further depression of world prices.
The bottom line here is that governments around the world are not abandoning their local sugar industries even when blatant financial realities face them. These governments subsidize to preserve local industries and local jobs. Every sugar producer worldwide, even the ones with the highest mechanization rates, are producing sugar higher than the worldwide price of sugar. The US, Brazil, India, Thailand, the EU, Colombia, Philippines, Vietnam, Pakistan, Mexico, etc, all do it. Even if they wanted to stop doing it, they wouldn’t when the rest of the world engages in rampant governmental subsidization.
To remove these protections to their local sugar producers when the rest of the world refuses to do so would result in the devastation of the local sugar industry to the benefit of subsidized competitors who will be happy to dump their heavily subsidized sugar in their countries.
It is extremely difficult to produce sugar at US 16 cents per pound without governmental direct or indirect subsidies. Nobody produces sugar at US 16 cents without governmental intervention. In fact, about 20-25% of the world’s sugar is actually traded at the ‘world price’. The rest is actually consumed locally within the countries where produced at significantly higher price than world price. The reality is that Guyana cannot produce sugar without governmental subsidies. It simply cannot, not with the escalation of world production in recent years despite the downward decline of world prices. Dumping by heavyweight countries alone in the last decade has increased the need for subsidies in every sugar-producing country, especially in the case of the medium and small players.
While I wholeheartedly agree that there are many efficiencies to be obtained in the Guyana sugar industry with mechanization and privatization leading the way, it is crass tomfoolery for any government to slash the sugar industry when faced with the world reality of governmental subsidization and furthermore, when the Guyana economy is in tatters and possibly already in recession. Give existing private cane farmers the opportunity to fail first rather than shut down an industry. It is nonsense to see this in simplistic black and white terms when the rest of the world that Guyana competes with does not. As many countries found when they transformed from state-controlled sugar production to private sugar production, the overall cost of the subsidies is always less to private farmers than to government corporations, because the former tend to operate more efficiently. The Commission of Inquiry failed to consider the impact of subsidies on sugar production worldwide despite a ponderous report. But this subsidization issue is the biggest factor at play here that cannot be sidestepped by this government.
It would make no sense to blow up our local sugar industry over cost of production concerns when no attempt is being made to privatize using existing private cane farmers, to see if the cost of production falls using privatization as it has in every country that privatized. Privatization will cull the weakest and most inefficient farmers from the market. Mechanization should deliver a reduced cost of production. Government simply has to ensure the industry operates efficiently (through privatization and mechanization) to minimize its subsidization.
What about the wider economic implications of this planned shutdown of Wales and inevitably more estates? How could a poor, undiversified, backwater, commodity-dependent economy in the grip of a current economic slide ever recover from shuttering a major industry for which there is no replacement industry of similar scale and reach? Why sabotage your own sugar industry in the midst of the lowest prices for sugar in the longest while, and in doing so expose the country to the virtual collapse of an entire industry and the country with it? The PNC (now APNU) always bears the stain (sometimes unfairly) from most of the society for being poor economic thinkers compared to the PPP (which is often just as dismal). These actions do not help in dispelling these beliefs.
Yours faithfully,
M Maxwell
