Sugar in the mirror of bad policy

AS WE often remind governments, what is worse than formulation of bad policies is when they actually execute them. That, generally, has deleterious consequences.

Audley Shaw, the agriculture minister, like his two immediate predecessors, appears to have found his senses and is clawing his way back from the brink. At least, on one element of policy. Apparently, he has dropped his plan to frontload a tax on refined sugar that food processors import for their businesses.

Minister Shaw had two primary, but flawed, premises for his plan. First, he felt that the levy, for which manufacturers would eventually receive a rebate, was the way to defeat the purported abuse of the system.

Jamaica imports around 80,000 tonnes of refined, or granulated, sugar annually, about 80 per cent of which is brought in on behalf of manufacturers, who pay no tariff. The duty on generally consumed refined sugar is in the region of 200 per cent. This week, Mr Shaw, no doubt, on the prodding of the old bureaucrats of the sugar business, accused these manufacturers of being part of a grand conspiracy to cheat the Government of revenue. By the minister’s claim, they sell a portion of the duty-free sugar on the domestic market, making a killing for themselves. So to plug this perceived loophole, instead of having law-enforcement agents investigate, charge, and convict the culprits, Mr Shaw proposed imposing the levy and having the manufacturers reclaim it after they made their products.

He, in the circumstance, appeared oblivious to the cash-flow and interest-cost pressures this would cause and how this might weaken the competitiveness of Jamaican food processors against their Caribbean and international counterparts. More fundamentally, Mr Shaw’s proposal, which hardly originated with him, revealed the bureaucracy’s lingering distrust of the private sector – its assumption that people in business are about to steal from the Government by failing to pay taxes. This issue highlights the need for a new conversation to ensure an entrepreneurial private sector and an enabling bureaucracy, working in tandem to achieve growth and create jobs.

The other basis for the minister’s intended action is that the presumed behaviour of the importers was “destroying the sugar industry”. In other words, Jamaica’s sugar manufacturers, who produce only raw sugar, could not sell enough of their products on the domestic market because of this assumed cheating.

Mr Shaw betrays two conditions that have long afflicted ministers who take charge of sugar. They are soon appropriated by the industry’s old hands and infected with notions of the inevitability of sugar and weary ideas about how sugar can be saved. That usually means sticking up taxpayers and digging deep into their pockets.

NOTORIOUS FALLACY

Indeed, it is a notorious fallacy that thieving manufacturers, their enabling brokers, and corrupt customs officials are what ail sugar. The industry, for the better part of two centuries, has hardly been profitable in Jamaica outside the confines of protected markets in Europe, which no longer exist. It is too small, inefficient and technologically backward to seriously compete against industry giants such as Brazil, India, Australia, Indonesia and Thailand. Yet, politicians and the governments they form, plus entrenched vested interests, find it hard to let go, fearing the loss of more than 30,000 mostly seasonal jobs and uncertainty about how to close any foreign-exchange gap left by the industry’s demise.

In the end, as was the case when Karl Samuda and, before him, Derrick Kellier, had silly ideas for hobbling the manufacturing industry, on the misguided assumption that they were saving sugar, good sense prevailed. Now, if Mr Shaw could move this to logical thinking about the future of the industry.

It would probably be cheaper to provide direct financial transfers to displaced workers rather than offer subsidies to the industry. Lands now in agriculture could be rationally utilised, including growing crops to substitute for a portion of the more than US$700 million Jamaica now spends on imported food. That would be good for the economy. A displacement of 20 per cent of that bill would be nearly four times what Jamaica earned from sugar exports last year.