Dear Editor,
For the purpose of maintaining an objective view of the Sugar Industry I would encourage an unemotional view be taken to the profit and loss (P&L). Playing the blame game while not also focusing on a solution does not add much value to the discussion at hand. Many have been able to improve and turn around such a business/industry and there is no reason why Guyana should not be able to also do so, especially given the premium pricing currently underway in lucrative world markets for products which are sweetened with sugar.
1. Starting with the revenues, the key question is how do we increase the revenues and the associated gross margin to overcome the net loss in the near to medium term?
1. a) With a pending increase in the buying power of the populace you take price. Remember a glass of cane juice is $200 and a pound of sugar is a fraction of that price.
1. b) You build your brand in key markets where this product profile has profitable share. This is easily seen on the shelves in the USA where a pound of such sugar is approximately $1.50 US or $313 G before taxes at current FX rates. I have shared this information with some previous members of the board while they were active.
2. Looking at costs, it is clear that the performance of the operations needs to be brought up quite a few levels:
2. a) The investment in automation and increased factory yield has been an area of underinvestment as seen in the issues surrounding inventory quality and inventory makeup.
2. b) The yield rates of the fields are not on par with those of high yield locations such as Brazil. This I have also shared with some previous board members while they were active. This is an opportunity to maximize prepared estates while also better covering the associated costs via adjusting planting methods and harvesting techniques.
2. c) Adjacent services such as canal cleaning which others including the government benefit from, need to be market priced and not priced using cost plus pricing, which has been the historical norm. Thus shifting these services from a cost centre to a profit centre.
2. d) The hourly labour compensation package is not competitive and should be renegotiated with the union to allow for both a livable wage while bringing compensation in line with industry norms and standards. Keeping in mind that the buying power of the worker will increase in the near to mid term. There is also an opportunity to expand the compensation structure utilizing non cash assets of the Government.
2. e) Financing costs/Interest expenses are not competitive and currently there is quite a bit of it that is avoidable. This should be curtailed as soon as possible and improved rates secured via support of the central bank and government backing.
2. f) The Government providing a temporary tax holiday for the industry stakeholders as they are doing for the oil industry would go a long way in terms of a subsidy and would place the pressure back onto the industry vs. direct dollar investment in the paying of expenses. This will also increase the accountability of the Board.
2. g) NIS/Pension expenses are also another opportunity for improvement within the P&L and a full & thorough audit of the assets of GuySuCo needs to be completed ASAP to ensure that the management team has in place robust processes to control the managing of the company. This will also allow for process improvement where weaknesses are uncovered.
Please note that this information is usually paid for and would be more detailed if a fresh eyes audit and capabilities assessment were conducted throughout GuySuCo. Diversification is always a good consideration. However, a company does best by first understanding what their core capabilities & competitive advantages are and then they can benefit from leveraging these capabilities & advantages via diversification. At the end of the day to diversify the assessment needs to occur and this is not a long theoretical process. It is quite pragmatic and can be done in a timely manner with the involvement and commitment of key stakeholders.
Refocusing on the solution for the Sugar Industry, I would encourage a close and serious look be taken to the suggestions mentioned above. Our industry can be fixed and made successful.
Yours faithfully,
Jamil Changlee
