Difficult context for Guyanese sugar sector restructuring faced

The government of Guyana has announced plans to restructure and downsize the sugar sector, with a focus on the production of direct consumption and specialty sugars for national regional and preferential markets. Revenue diversification through electricity co-generation will also be promoted. Guyana will need to strengthen its marketing infrastructure if it is to be able to compete on regional markets, given the wider trade consequences of EU sugar sector reforms. While EU markets will no longer be a focus, opportunities could exist for the development of new partnerships for the marketing of specialty sugars in Europe. 

In May 2017 the Minister of Agriculture of Guyana, Noel Holder, announced a radical overhaul of the sugar sector, with estates and processing facilities being consolidated. Six current estates and processing facilities will be consolidated three more viable entities.  The Government takes the view that while it cannot allow GuySuCo to die; equally it cannot continue to support a business model for GuySuCo characterized by ‘waste, inefficiency and hopelessness’ (1).

To improve the financial position of GuySuCo the costs of drainage, irrigation and health service provision in estate areas are to be transferred to the national budget.  Land will also be leased to farmers to undertake independent agricultural production under regional food self-sufficiency initiatives (1).

The Skeldon estate meanwhile is to be divested.  The Minister noted how ‘significant investment has been made in the new Skeldon Factory which, to date, has experienced numerous technical problems’.  The facility has ‘failed to achieve its potential thereby failing to generate returns on the investment’. Since GuySuCo ‘does not have the resources required to correct the technical problems’ at the Skeldon facility, owing to the existence of loan obligations in ‘excess of G$29 billion’ (2), the government sees no alternative but to privatise the estate.  Discussion with potential investors in India and Brazil remain on-going, although the issue of the Skeldon’s debt remains problematical (4). Skeldon related investments account for G$29.3 billion of GuySuCo’s G$77 billion in current debt obligations (3).

In presentations to the Guyanese National Assembly’s Economic Services Committee, senior GuySuCo officials maintained ‘if G$45 Billion worth of subsidies were plugged into the entity some 331,000 tonnes of sugar could be generated’. This would however be equivalent to an annual government subsidy of G$10 billion (3). In May, Minister Holden estimated the required annual subsidy even higher at ‘G$ 17 billion for the next 4 years to keep the estates open and operating’.  It was held the government was ‘hard pressed to justify such expenditures since the opportunity cost of keeping GuySuCo as  a going concern in its present state is too high’ (1).

In 2016 GuySuCo’s sugar production fell 18.7% compared to 2015, with production of 183,000 tonnes, 56,000 tonnes below the projected production level for 2016. Since reaching a recent peak of 298,540 tonnes in 2004, GuySuCo has faced consistent production problems, with 3-year averages of 238,189 tonnes, 207,064 tonnes, 198,377 tonnes and 201,889 tonnes in the following four successive three year periods

Guyanese Sugar Production (tonnes) 2005-2016

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
226,054 240,828 247,686 210,070 214,664 196,458 232,244 196,665 166,223 195,225 227,443 183,000

According to Minister Holden, ‘the sugar industry now lags behind mining construction and the rice industry in its contribution to the national economy’ (1).

The Minister argued the future of the Guyanese sugar industry lay in ‘a smaller sector with reduced losses and cash deficits, but coupled with a separate and profitable diversified enterprise, which would ensure a viable future’ (2). The focus would be on satisfying ‘the domestic and foreign markets that provide preferential access for sugar’.  He set out a vision of a sugar sector producing around 147,000 tonnes of sugar annually, with this consisting of direct consumption and value added sugars , with co-generated electricity for sale to the national grid also being produced.

This reduced sugar production would target local demand (25,000 tonnes), CARICOM and regional demand (50,000 to 60,000 tonnes; the USA (12,500 tonnes) and the World Market (50,000 tonnes) (1).

Government plans are facing considerable criticism.  Former industry executives have highlighted the importance of the sector to livelihoods (16,000 people directly employed and 90,000 securing a livelihood through the sector out of a total population of 770,610) and has warned that if the fabric of the rural economy woven around sugar production is ‘abruptly rent’, the ‘social-political consequences would be grave and disruptive’ (4).  Opposition leader Bharrat Jagdeo has called on ‘sugar workers to rise up against plans to close sugar estates. The Guyana Agricultural Workers Union (GAWU) meanwhile, has called for ‘a paradigm shift from an inefficient producer of raw bulk sugar to an efficient producer of direct consumption sugars and other products’ (6).

Comments and Analysis
The Government of Guyana is making a bold effort to tackle the challenges facing the sugar industry, in the face of the major changes underway in Guyana’s main traditional market, the EU. Since the announcement of EU sugar sector reforms in 2005 the EU market had come too accounted for around 75-80% of total Guyanese sugar production.  This compares to an average share of around 60% in the period 2002-2004. The main trend since 2005 has thus been towards a concentration of Guyanese sugar sales on the EU market.

Guyanese Sugar Exports to the EU (tonnes) and % share Guyanese production 2005-2016

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
160,628 166,638 204,817 213,334 175,934 153,401 161,558 155,622 136,015 160,872 168,053 101,722
71% 69% 83% 102% 82% 78% 70% 79% 82% 82% 74% 56%

Source: EC market access data base

What is more, between 2008 and 2015 in most years exports of sugar to the EU market were concentrated on the UK market.  This represents a matter of considerable concern given the UK’s scheduled departure from the EU on 30th March 2019 and the consequent lapsing of existing market access arrangements.  Even if current preferential access arrangements to the UK market were to be extended from the 30th March 2019, this would still leave considerable uncertainty over the future trajectory of UK sugar and sugar trade policy. There is strong domestic pressure on the UK government to abandon the €98/tonne duty levied on non-preferred sugar imports, once the UK is no longer bound by the EU’s common agricultural policy. This policy uncertainty creates serious doubts as to the future commercial value of any preferential access which may be secured to the UK market from 30th March 2019 (see companion articles ‘What are the implications for ACP sugar producers of Tate & Lyle Sugars expectations on UK sugar sector policy post-Brexit?’, 20th March 2017).

It should be noted that it was only in 2016 that Guyana’s market dependence on the EU (and within the EU, the UK) began to decline. In 2016 the EU market accounted for only 56% of total Guyanese production, in the face of a 19.5% decline in sugar production and 39.5% decline in the volume of sugar exported to the EU. While the importance of the UK market within exports to the EU28 fell to only 51%.

Guyanese Sugar Exports to the UK (tonnes) and % total exports to EU28 (2005-2016)

  2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
UK 105260 78893 90698 176102 166176 86011 109436 133942 113712 127464 167539 51428
% 66% 47% 44% 83% 94% 56% 68% 86% 83% 79% 99.7% 51%

Source: EC market access data base

Given the competitiveness challenges faced in Guyana and the major changes pending on the EU sugar market (including, sugar production quota abolition, major public health campaigns to reduce sugar consumption, the increased availability of a growing range of alternative sweeteners and the UK’s departure from the EU – for more details see ‘Multiple challenges pending for ACP sugar exporters’, 1 May 2017), it should perhaps come as little surprise that the EU market is notably absent from the Government of Guyana’s projected future for its sugar sector.

This being noted, given the desire to focus the Guyanese sugar sector on the production of direct consumption and value added sugars, there could still be scope for exports of specialty Demerara sugars to the EU market, particularly if appropriate marketing strategies can be set in place, in close association with an EU beet co-refiner.

EU beet processing company may have an interest in such a joint venture arrangement, if it extended their product range in ways which helped position their company as a ‘one stop’ supplier of a wide range of sugar products. Enabling such companies to serve market components which cannot be met through their own domestic production, could help support domestic market positioning strategies of individual companies as they position themselves within an increasingly competitive EU sugar and sweeteners market.

Drawing on the marketing and packaging expertise of an EU sugar company which is busy repositioning itself for the consequences of EU production quota abolition, could potentially open up new opportunities for the export of value added sugars from Guyana. This would be particularly beneficial if it formed part of a joint venture arrangement.

This would require GuySuCo to develop much closer commercial contacts with EU beet sugar companies. Such efforts would, to a certain extent, need to mirror the experience of the Mauritian Sugar Syndicate through its 2008-2015 joint venture arrangements with Sudzucker (8).

However it is unclear to what extent this will be possible under current conditions. The Mauritian Sugar Syndicate undertook its market repositioning strategy during the first stages of EU sugar sector reforms, with the joint venture agreement being concluded in 2008 and with investments having been prepared and undertaken for this market reposition in the preceding eight years (in part with EU sugar protocol accompanying measures programme and EIB funding).

It appears as if previous governments in Guyana consistently avoided having to ‘bite the bullet’ of fundamental sugar sector restructuring, preferring to bank on a high profile and equally high risk investment strategy (the Skeldon project) intended to make the leap into global competitiveness. This strategy has demonstrably failed, with, despite the political challenges, the current government now seeking to implement a new approach.

Looking beyond the EU market to the core focus on Caribbean and wider regional markets, the marketing challenges which will be faced should not be under-estimated. Other Caribbean sugar producers which currently serve the EU market are also likely to be looking to refocus exports on regional markets. This could see up to 163,000 tonnes of CARICOM sugar currently exported to the EU in search of regional markets.

Some of these producers, notably Belize, have access to sophisticated marketing infrastructure via their corporate links to American Sugar Refiners, a company which claims to be the ‘largest vertically integrated cane sugar refiner in the world’ (7). This suggests GuySuCo will have to pay far greater attention to the long term market positioning of Guyanese sugar than it has to date.  This will be by no means a simple task.

To date, the financial pressures on GuySuCo have led to a short term profit maximisation marketing strategy, which has left the industry deeply exposed to the EU/UK market, in the context of profound market changes.  This is threatening a major reduction on revenues from sales to these markets from October 2017 onwards.

Against this background it is difficult it see from where the expertise will be drawn for the design and implementation of the necessary targeted strategies for the marketing of direct consumption and specialty sugars in the Caribbean region and beyond.

(1) Kaieteurnewsonline.com, ‘Govt to keep only three sugar estates’, 9 May 2017
(2) Guyana Chronicle, ‘Future of sugar lies in smaller sector, workers to get lands under restructuring plan’, 8 May 2017
(3) DemeraraWaves, ‘GUYSUCO cannot diversify with high sugar production cost, ethanol could kill rum industry’, 20 January 2017
(4) Stabroek News, ‘Sugar divestment closer’, 2 March 2017
(5) Parliament of Guyana, ‘Report of the Commission of Inquiry Guyana Sugar Corporation Vol. 1’, October 2015
(6) Stabroek News, ‘White paper on sugar option for National Assembly – Harmon’, 8 March 2017
(7) Agritrade, ‘Tate & Lyle/American Sugar Refining – corporate profile’, 23 July 2014
(8) Agritrade, ‘Südzucker – corporate profile’, 27 September 2014

Key words: Sugar, GuySuCo, American Sugar Refiners,  Südzucker, Belize, Mauritian
Sugar Syndicate
Tags:          Sugar, Caribbean EPA, Brexit