Dear Editor,
Within recent times GuySuCo and its choir leaders have changed their tune from “turnaround plan” to “revitalization plan”, but none of these spins or twists could change the downward trajectory the company has been traveling the past 15 years since the European Union imposed the 36% price cut and the removal of both the preferential market and price for sugar destined for Europe. Prior to these changes, Guyana was enjoying a fixed supply of 167,000 tons sugar per year to a preferential European market, under a special protocol arrangement, at a price per ton higher than the average world market price. The revenue from this market was denominated in the US dollar, and due to the devaluation of the G$ to the $US, with an average annual production of 250,000, the income generated yielded windfall profits for GuySuCo almost each year.
The 36% price cut was scaled over 3 years (2006 – 2008), and with the front-loading of funds by the EU through the accompanying measures to Guyana to prepare for the consequences of the said price cut, GuySuCo and the government failed to take the necessary restructuring and repositioning measures, as a result thereafter, the company went on a downward spiral. Most of the funds were directed outside of GuySuCo and the construction of the US$180M Skeldon Factory and cultivating of vast amount of lands to supply canes was a response to the price cut. The factory failed to stand up to expectation, as a result both the factory and lands were abandoned through closure. They only exacerbate an already financially beleaguered company whose vulnerability to low production and high cost has been exposed each year
GuySuCo is presently producing sugar at almost US$1.00 per pound, or could be more, and the highest price it currently gets is for sugar sold in the CARICOM markets at approximately US$750 per tonne or US34 cents per pound, a loss of 66 US cents for every pound sugar sold. Last year, the company produced 60,000 tonnes as such, notwithstanding it has not disclosed its financials, it could have made a US$87 million or G$18 billion loss, using an average selling price of US$750 per tonne and cost of production of US$1.00 per tonne. The company cannot deny making such a loss when compared with the new CEO’s disclosure that in 2021 and 2022 the company made an accumulated loss of G$16 billion for these two years.
Any “revitalization” of the company requires a significant drop in the cost of production (by almost US66 cents per pound) a near impossible feat when it is shackled with an employment cost holding a highly disproportionate percentage of its total operating expenses. Most of its employment cost is fixed based on head office and estates salaries. This cost will escalate rather than drop due to pay increase, and it is not within the objective of the present government to reduce on employment numbers through redundancies or natural attrition because its political manifesto boldly speaks of creating more jobs in the sugar industry.
Where then would the company seek to reduce its cost of production? The only real hope for “revitalization” at breakeven point is for GuySuCo to produce sugar at not more than 34 US cents per pound, and retain the most viable markets within CARICOM and the USA with a selling price of at least US$750 per tonne. Any production that is in excess of CARICOM, US and domestic market needs will result in sugar being sold in less lucrative markets. The present world market price is 20 US cents per pound. The biggest cost that the company would have to make if it is really serious in revitalizing the sugar industry is employment cost. It would require political will to forge this into reality, if not GuySuCo will forever be a drain on the national coffers. The low production that the company experienced in the last 4 years with a huge fixed cost has contributed to the loss of billions each year. Unless both are reversed, GuySuCo will remain a loss making entity.
It is now left to the new CEO to bring his vast private sector experience and business acumen to make those hard decisions. Then again he is also a member of the central executive of the ruling party. A clash between prudent business decisions and political loyalty.
Sincerely,
Raj Parmanand
