Booker tate should to walk
Kaieteur News
July 3, 2004
One of the impressive things about the Jagdeo administration in Guyana was its recognition some time ago that if the sugar industry was going to survive, it would need to reduce its cost of production to cater for the end of special privileges which our main crop has traditionally enjoyed in the European market.
The writing has been on the wall for a long time now. Over the past decade we have seen an assault against protectionism in global trade. Even in those sectors, such as the heavily subsidised American steel industry, where it was felt that the richer countries would resist rolling back subsidies, have seen challenges.
It was therefore inevitable that one of the most protected regimes in the world - the European Sugar Regime - would eventually have to be reformed and the massive subsidies and protection offered to European farmers would have to be rolled back.
We in Guyana had long predicted this. This is why the Jagdeo administration wisely pushed for the modernization of the sugar industry. The writing was there as soon as the Everything But Arms deal was proposed. This deal signalled that preferences were going to be rolled back and Guyana had to begin to prepare to trade with a Europe where the special quotas and preferential prices would eventually wither away.
We knew that the day would come when a proposal would emerge which would erode the privileges we enjoyed in the lucrative European market. And we have, belatedly, begun to take steps to ensure that we lower our cost of production by close to 40 per cent to cater for a world when the preferences would no longer be around.
Therefore it was extremely disappointing to hear our president playing politics when he said that the decision to reduce sugar prices by 40 per cent over the next three years is a breach of trust. What trust is he speaking about?
Surely after the Everything But Arms Deal was proposed we should no longer have lived under the illusion that the Sugar Protocol was untouchable and of an “indefinite” duration. Even the indefinite has to come to and end and the signs are that it may be sooner than later.
Technically there is no proposal to cut the price paid by Europe for sugar under the EU- ACP Pact. What is being proposed is a situation where the European Union would roll back the subsidies it pays to its farmers thereby reducing the price European farmers receive for their sugar, which is three times the world market price, which of course bears no resemblance to the true cost of production.
However, the new proposal - and it is only a proposal at this stage - is expected to impact on the special price countries like Guyana receive since the way, the plans by the Jagdeo administration to bring down the cost of production to about 11 cents per pound. The government hopes to do so through its modernization programme and we must credit Jagdeo with the courage to go ahead with the plans despite the criticism from Dev and others.
What the Jagdeo plan means is that when the crunch comes, and believe me it will, Guyana will be prepared because we would have significantly lowered our cost of production. I doubt whether other high-cost producers are interested or will be able to stay in the market once the new proposals take effect.
This would mean that Guyana could secure a long-term stake in the world sugar market once it continues to attract investment into the sector.
The real fear is not that whether we will survive. The real fear is that of procrastination. The modernization plan that is only now commencing should have started a long time ago. But the negotiations with the international agencies were protracted and put the original timetable two years behind schedule.
Had we been able to stick to the original timetable, today we would have been sure as to where we stand because the cost cutting process would have begun.
The new proposal will not have a quick and easy passage. The sugar lobby in Europe is one powerful block and just like how the Everything But Arms Deal had to be put back to 2009, I anticipate a delay in the adoption in any policy, which would see immediate reductions in the price of sugar.
What we should not count on is bargaining on the “indefinite duration” provision. That is a lost cause. The sugar regime will be reformed and prices will be cut. Low cost producers such as Brazil and Australia will benefit but Guyana will also survive because the medium-term result of a reduction in subsidies within the European Sugar Regime will see less sugar being dumped on the world market at below cost of production. This will help improve the world market price for sugar. And that world market price will not settle at 7 cents per pound. There should be no panic. Guyana needs instead to ensure that there is no procrastination in its decision-making about the sugar industry. We need to move ahead quickly with the modernization plan and whatever Demerara estates need to be phased out will have to be phased out.
More importantly, we need to cut costs and the best way to do this is to immediately think about phasing out the management contract with Booker-Tate. If there is going to be any casualty because of this new proposal, it will have to be at the expense of the highly expensive and now redundant agreement for the foreign management of the sugar industry. As a gift to Guyana and to allow us to prepare for a future without preferences, Booker Tate should walk.