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.