This week I am continuing the discussion on the region's sugar industry that was started last week. Readers would recall that I have so far highlighted the decline in overall production as well as in the number of countries producing sugar in the region.
From the total of just over 0.7 million metric tonnes of sugar, which is currently being produced, about 87 percent has been exported. The striking feature of the Caricom export of sugar is that it is all concentrated in special preferential trading arrangements.
The main exports go to the EU market, which purchases a total of about 0.5 million metric tonnes under two separate preferential arrangements. We shall discuss these later, but it should be noted that these are currently the subject of bitter controversy.
These exports represent about three-quarters of total exports from the region. The US quota market and the world market are small in comparison to the EU market, as they account for just 5 percent and 6 percent of total exports respectively. Of note is the Caricom market. At present this accounts for around ten percent of regional exports but it has shown encouraging growth in recent times.
In recent years regular sales to the Caricom and world markets have been made only by Belize and Guyana, as these two countries alone are able to produce consistently beyond their EU quota obligations. Occasionally, one or other Caricom member other than these two make sales under the US quota arrangements. Thus for crop year 2002/2003 Jamaica also made sales under its US quota.
The trend in technical indicators
The striking annual average decline in regional sugar production of minus 1.97 percent, which was noted last week has been, not surprisingly, accompanied with sharp reversals of the key technical indicators in sugar production. Thus between 1965 and the end of the 1990s, as production plummeted, yields of sugar cane per acre have declined by about one-quarter. Additionally, the yield of sugar per acre has declined by as much as one-third. Within the factories, the conversion rate for sugar cane to sugar has also worsened rising by 17 percent over the same period. As we shall see later these outcomes have had a tremendous adverse impact on the cost of sugar production in all six sugar-producing countries. Performances have, naturally, varied by individual country. Thus in recent times the tonnes cane to the tonnes sugar conversion ratio has varied from 10.04 (Barbados) to 12.93 (Trinidad and Tobago). However, the weighted average cost of producing sugar in the region has risen in recent years to about five times the free market price for raw sugar sales.
The contributions of sugar
Despite the downward trend in sugar output, the predicament is that sugar still is the second largest employer of labour in the Region. In two territories (Barbados and St. Kitts-Nevis) there are in fact labour shortages, requiring migrant labour to be regularly imported for harvesting. Sugar's overall contribution to both GDP and commodity exports varies widely among the six sugar producing countries, reflecting for the most part the degree of diversification achieved in the particular country.
Thus the ratio of sugar value-added to GDP ranges from one to 16 percent. Similarly, the ratio of sugar export sales to the total value of exports ranges from one to 29 percent. In addition, the industry has important linkages to other industries and sectors. It generates positive (and negative) externalities and marked multiplier effects in the rest of the economy. Sugar production also yields two very important by-products: bagasse and molasses. These by-products are principally used as fuel (bagasse) on estates, or as feed and inputs into the local alcohol/rum industry.
The social relations generated around and in the industry are also very important. Apart from laying the foundation of West Indian society there still remains distinct communities in the region, which have existed for a long time, and whose survival are crucially dependent on the sugar industry.
These contributions of sugar are of particular importance since studies have shown that there is no other crop capable of replacing sugar competitively and producing at the same scale. In economic studies, it has been demonstrated that sugar has the best domestic resource co-efficient of all agricultural crops in the region.
The structure of the sugar industry varies considerably across the region. There is no uniformity. This is clearly revealed in the different patterns of ownership and management, as well as the mix of estates and small firms, which prevail. In some countries management is all local, while in others it is operated through an external management contract. Some industries are privately owned, while others are state-owned. Again we find that in some countries individual small farms dominate the cultivation of sugar while the processing mills are centrally owned. Finally, the small farmer sugar cane cultivation sector varies from 10 to 100 percent across the region.
Next week we shall turn to an examination of the factors behind the decline and near collapse of the regional sugar industry.
In last Sunday's article I had started to identify the major factors associated with the decline of the regional sugar industry over the past four decades. I had indicated in the article that perhaps the most important association of all might well be the one between the pattern of the decline, which had emerged, and the changing pattern of ownership and management regimes in the region during this period. This week's article continues this examination.
Its primary purpose is to show the effect of these developments on the current cost of producing sugar within the region, which will be the focus of next week's article.
Another important contributory factor to the overall decline has been the deterioration in the productivity of sugar lands and the workforce alongside the reduced efficiency of the sugar factories that process the sugar cane. Since the decline in sugar output has exceeded the de-cline in the acreage of harvested cane, the productivity of sugar lands has clearly declined. Estimates are that, on average, the yield of sugar cane per acre of cultivated land has declined by about one-quarter since its peak in the mid-1960s. Similarly, the yield of sugar (derived from the plant) per acre of cultivated land has declined substantially - by about one-third. Contributing to the decline in the yield of sugar per acre of land has been the reduced efficiency of the factories, which process the sugar-cane plant to produce raw sugar. Thus although the total number of sugar factories in the region has been reduced from 55 to 23 in the search for increased factory efficiency, on average, over the same period, it now requires one-sixth (or 17 per cent) more tons of the sugar plant to produce a ton of sugar.
By any standards the factories are operating at less than acceptable levels of efficiency.
This has reduced the industry's capacity to complete harvesting and processing within reasonable cropping periods. Indeed it has been estimated that the cropping periods are as much as 30 per cent longer than what are required for efficient mill operations!
Labour and thedecline of sugar production
Labour is a major element in the efficient production of sugar. Indeed labour cost is more often than not the largest single expense item in the industry. Over the years at least six developments have aggravated the labour situation in the industry. First, the industry has been consistently failing to attract new entrants and everywhere the workforce has become 'aged.' Indeed the shortage is so acute that, in some of the islands, labour has had to be imported at crop time. This arrangement has benefited Guyanese sugar workers in particular.
Second, the work environment has deteriorated, for a number of reasons. Thus, where the industries were nationalised government interference has produced conflicts in which the political allegiance of the work force became a crucial indicator of how these conflicts would be played out in practice. A good example of this is to be found right here in Guyana. While it was the PNC government which had nationalised the sugar industry, its workforce bore overwhelming allegiance to the then opposition PPP.
Not surprisingly the result was an intensification of conflict to the point where strikes, lock-outs, illegal cane fines, and other forms of industrial sabotage were the norm. Overall, these developments consolidated a pattern of industrial relations practice, which not only sustained the cycle of conflict in the industry, but also by its very nature placed productivity and efficiency in a secondary position in relation to workers' rights, justice and equality.
Over this period, workforce training also lagged. Additionally, the pull of external migration was immense and skilled factory workers were in high demand and therefore migrated when the opportunity occurred. At the same time, particularly in sugar-producing countries other than Guyana, economic diversification was advancing rapidly. New service industries like tourism, entertainment, and travel claimed the cadre of persons that would have formerly gone into the sugar industry where wages and working conditions had remained stagnant by comparison. Land and the decline of sugar
If labour has been a crucial factor in the decline of the industry, so too has been land and land-related issues. Many analyses and reports over the years have detailed the deteriorating husbandry in the region, with particular emphasis on poor ratooning and replanting practices, inadequate fertilizer use, and a host of mis-steps in both cultivation and reaping practices.
To these can be added two other adverse factors. One is considerable evidence of decline in the quality of sugar-cane varieties that were planted. And the other is the significant ravaging crops have suffered over the years, as a result of pests and diseases.
Another aspect of the land problem is that severe physical shortages of land in the territories other than Belize and Guyana have created intense competition for cane lands. Given the returns from sugar, sugar lands have been alienated for housing, recreation and tourism.
In several countries, it is only land use planning regulations that have saved sugar lands from complete alienation. Property developers, especially in Barbados where as we noted the private plantations are owned locally, this threat of conversion of sugar-cane lands to other uses is always present.
In Guyana, although land is far less scarce physically, bringing it into cultivation requires massive investments in such overheads as access roads, drainage, and irrigation. Over the years, due to poor maintenance and insufficient new investments, these have all deteriorated and have also contributed significantly to the decline of the industry.