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What sweet in goat mouth...
By Raffique Shah
August 30, 2009
With the price of sugar shooting through the roof-at least by that commodity's standard-there are calls from many quarters for Government to resuscitate the local sugar industry. From the Maha Sabha's Sat Maharaj to All Trinidad's Rudy Indarsingh, people are heaping scorn on Government for closing the industry when it did in 2007. They are seeing gold where, not long ago, only trash and spoilt canes stood. Fool's gold, I say-and I shall produce facts to support my position.
What is the "through the roof" price that is prompting those who either do not know the facts, or refuse to accept them, to crow over? Raw sugar is fetching US 22 cents per pound, almost double what it did eight months ago. This price, which would hardly increase by more than a few cents, amounts to just over TT$3,000 per ton for raw sugar. That (called the "world market price") is less than the preferential price ($3,400) the European Union (EU) paid for our sugar back in 2000-2005. African, Caribbean and Pacific (ACP) countries were allowed fixed quotas on the EU market on an annual basis.
In 2001/2002, when local sugar production was at its highest for many years (96,000/101,000 tonnes), this country's quota to the EU was 56,000 tonnes. By 2003, sugar production had dropped precipitously-to 56,000 tonnes. In order to benefit from the EU's preferential price, we sold all our production on that market, and imported "raws" at less than half that price, to be refined as white sugar for the local market. At the same time, Guyana exported 95,000 tonnes to the EU, and little Fiji over 200,000 tonnes.
Our cost of production was another sore bone of contention. In the year 2000, according to ISO numbers, it cost Trinidad US 56 cents to produce one pound of sugar! In contrast, Belize produced a pound at 15 cents, Guyana 20 cents, and even Barbados, 38 cents.
By global standards, Brazil was producing sugar at six cents per pound, and India eight cents. It is for this reason the industry was heavily subsidised by Government, somewhere in the region of $300 million a year.
In fact, following a Tripartite Committee sitting and reporting back in 1992, the Government wrote off a debenture of $2 billion it held over Caroni Ltd on the understanding that the industry would re-engineer itself.
By 2007, when the industry was finally shut down, with Government having paid off workers close to another $2 billion (in terminal benefits and residential and agricultural lands), and cane farmers some $80 million (which I said at the time was a gross injustice), Caroni had produced a paltry 30,000 tonnes of sugar at a cane-to-sugar ratio of 14/1. Since then, whatever may be claimed to the contrary, most cane farmers and sugar workers have moved on. Much of the private and tenanted sugar lands have been converted to produce other crops-cassava, sweet potatoes, vegetables, paw paw and more.
To attempt to resuscitate the industry on the basis of a price-spike (no different to when oil hit US$147 a barrel!) is to try to breathe life into the dead. It would take upwards of $50 million-and that's a conservative estimate-just to get the Ste Madeleine factory operational. Farmers, who will be expected to supply the canes, will hardly settle for anything less than $250 per tonne, and that at district "scales".
Direct delivery to the factory will cost at least $300 per tonne. "Taskers", special trucks that catered for transporting canes from fields to factory, have been demobilised. Which contractors will risk re-configuring their truck-fleets in another uncertain nightmare to resurrect the dead?
In other words, just to attempt to cash in on what appear to be high sugar prices will cost the country-government, farmers and contractors-upwards of $1 billion. Those who are touting a return to sugar have not analysed why prices have spiked.
First, adverse weather conditions have affected some of the biggest sugar producing countries. There was severe drought in Australia and India, and very heavy rains in Brazil.
Also, in India, one of the biggest sugar-consuming countries, large numbers of farmers converted their sugar fields to produce food. They are earning much more money per hectare than they did with cane. The same holds good for local farmers who have switched to other crops.
I argue that the price of sugar, much like the price of oil, can plummet within a year. It most likely would, probably back to 15 cents per pound. Because Guyana invested in the 100,000 tonnes a year Skeldon factory a few years ago, it is now poised to cash in on the sugar windfall. Even so, that country's president, Bharrat Jagdeo, at the formal opening of the factory, referred to labour and productivity challenges that could render the investment useless.
Guyana and Belize are best poised to produce sugar at reasonable costs. Let us support them while we focus on growing crops we can eat. Let us not be dazzled by fools' gold, as so many see in a sugar-spike.
-More on this topic in next week
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