Monymusk and the sugar dilemma

THE HOLNESS administration, in particular its agriculture and industry minister, Karl Samuda, can now end the self-denial and accept that the Chinese-owned Pan Caribbean Sugar Company (PCSC) has no more interest in their Monymusk operation and intends to throw no more of their money at it. Losing US$60 million, or more than J$7.7 billion, on that factory is quite enough, Liu Chaoyu told this newspaper.

So, according to Ms Liu, their hope is to find a partner, but preferably someone to buy the plant outright. PCSC’s position has been communicated to the Government, and should, paradoxically, be liberating for Mr Samuda. He no longer needs to camp outside the doors of PCSC and its parent, COMPLANT, hoping for their benevolence — that they will take another shot at Monymusk.

But the Government at the same time has a dilemma. In the absence of serious consideration of a post-sugar environment, and a policy to cater thereto, it has to decide how it will avoid succumbing to a moral hazard about which this newspaper has previously warned: a march back into ownership of the sugar industry, or at least a piece of it.

Indeed, the Government operated the Monymusk factory during the last harvest, spending J$250 million on the endeavour. Mr Samuda has been considering doing the same thing for the 2017-18 crop, but was hoping that PCSC would offset some of the cost, which the company has been reluctant to do.

Despite the criticisms levelled at PCSC by some industry players, no one could reasonably accuse the Chinese company of not having a fair go at sugar in Jamaica since their US$9million investment in three state-owned factories and estates, including the mothballed Bernard Lodge factory in St Catherine. They invested US$260 million, or over J$33 billion on their facilities, mostly on the factory at Frome, Westmoreland, but are yet to have a return on their capital.

Part of the problem with Monymusk is that the sugar cane throughput has been very low —merely 37 per cent of capacity. And PCSC can see no way to have its fields, including those controlled by private farmers, become more productive, thus helping to drive efficiency at the factory. Their game plan now is to ring-fence Frome.

Pan Caribbean, and the sugar industry generally, faces a larger problem, to which Ms Liu referred, that is, the sharp decline in world sugar prices in 2017 on the back of strong growth in output, especially by the world’s two largest producers, Brazil and India. The 25 million tonnes of sugar India is expected to harvest this cycle is not only 23 per cent better than the previous crop, but the best in seven years. Indeed, sugar markets are expected to be in surplus in 2017-18.

HAMPDEN MOTHBALLED

Since the 2009 privatisation of the Government’s sugar entities, one of the buyers, Everglades Farms, has mothballed their Hampden factory in Trelawny and are now contemplating a renewable energy venture, the facility, which the Government operated for a season. And having lost money on their operation in St Thomas, the Seprod Group is being innovative in the marketing of its output hoping to staunch the flow of red ink. Two other long-standing, privately-owned factories, Worthy Park and Appleton, though historically more efficient than the rest, are believed to be also facing challenges.

Another element of the Government’s dilemma over sugar is that the industry employs, directly and indirectly, an estimated 40,000 people and the maintenance of jobs is often the driver for governments to intervene in business. But the Government should remember why it divested its sugar entities: they had huge debts and were losing over J$5 billion a year. The bottom line, too, is that business is not social welfare. Moreover, attempts by Government to direct resources to selected enterprises, and propping up old sectors with taxpayers’ subsidies tends to stifle innovation and growth.