Dear Editor,
I refer to an SN article (December 23, 2024) captioned ‘President talks tough again on GuySuCo amid poor results, ongoing subventions’ (https://www.stabroeknews.com/2024/12/23/news/guyana/president-talks-tough-again-on-GuySuCo-amid-poor-results-ongoing-subventions/). In that article, President Ali is quoted as saying “…if …the target for 2025; the first crop target, and the second crop target, if the target is not achieved, then heads will roll.” May I state that while satisfying targets may sound like progress is being made in GuySuCo, this approach would be another misleading number in the sugar industry. This is because what really matters are not crop (production) targets; but producing sugar at competitive prices that will ensure the financial viability of GuySuCo, while simultaneously reducing and terminating government subventions to a non-competitive and loss-making industry.
GuySuCo’s economic problems in the sugar industry have multiplied with the termination of the preferential European Union (EU) sugar price; that is, a subsidized sugar price that was higher than the world market price; see Figure 1(IMF https://www.imf.org/external/pubs/ft/scr/2010/cr10293.pdf ). Notably, this EU subsidy generated for GuySuCo a false profitability measure, given that a significant share of Guyana sugar was sold under the EU arrangement. In contrast, had the sugar been sold at world market prices, the losses would have been substantial for several years.
Consequently, in order to turn this loss making activity into a profitable venture, GuySuCo must reduce its cost of production to competitive world market price levels, which ranges between US$0.13 per pound of sugar in 2018 to a projected US$0.17 per pound of sugar in January 2025 (https://www.statista.com/statistics/675828/average-prices-sugar-worldwide/).; https://tradingeconomics.com/commodity/sugar).
Recently, it was reported that GuySuCo average cost of production of a pound of sugar is US$1.31. And when this cost is compared with a world market price of US$ 0.17 per pound, this results in a loss of US$1.14 on every pound of sugar that is sold by GuySuCo. (https://www.stabroeknews.com/2024/11/14/news/guyana/we-cannot-continue-at-that-cost-of-production-at-GuySuCo-president/).
In order to cover such losses, the government of Guyana in 2023 transferred G$15.0 billion to GuySuCo; but this amount was insufficient to cover the losses in that year of G$4.7 Billion. Additionally, projections for 2024 are no less encouraging as production is expected to decline (https://www.stabroeknews.com/2024/11/14/news/guyana/we-cannot-continue-at-that-cost-of-production-at-GuySuCo-president/).
In summary, decreasing output, together with the high average cost per pound that is above the world market price, presents a significant efficiency challenge. As a result, if GuySuCo is to become internationally competitive it has to reduce its average cost per pound by increasing its productivity index (the conversion of sugarcane to sugar) by more than 10 times; that is, US$1.31/10 = US$0.13 per pound. This enhanced productivity performance would necessitate a huge transformation across every department as well as require increased yields and significant subventions for several production cycles.
Recognizing that the cost of living is increasing (https://www.stabroeknews.com/2024/01/29/news/guyana/how-the-cost-of-living-is-affecting-people-23/), and acknowledging that GuySuCo sugar is already more expensive than imported sugar, it is plausible to expect that the importation of sugar would be a better deal for consumers. Finally, an important question that all Guyanese must consider is this: Given the high cost of sugar produced by GuySuCo is there an incentive for sugar to be smuggled into Guyana? The answer to this question is left to the reader.
Sincerely,
Dr. C. Kenrick Hunte
Professor and Former Ambassador