Samuda in the jaws of moral hazard

HAVING PLUNGED his head into the jaws of moral hazard, Karl Samuda, the agriculture minister, is attempting to extricate it with equal bravado. But despite the bluster he has brought to the effort, we are not sanguine that Mr Samuda and the Holness administration will escape unscathed.

It is not apparent that they have a plan for Jamaica’s sugar industry, should the companies that now control it fail. Nor do they seem willing to walk away from it, should the worst comes to pass.

We are again drawn to this issue by Mr Samuda’s declaration in Parliament this week, delivered with trademark bombast, that “under no set of circumstances” will the Government put more money into the Long Pond Sugar Factory in Trelawny without a proper plan for its development and other sources of capital to ensure its viability.

Further, the minister insisted, should there be a new investor in the factory, whether it is sold in full or in part, the Government would ensure that it recoups any cash it has put into the operation. Although he did not say so explicitly, Mr Samuda, at least in tone, suggested that the Government would have to be treated as a preferred creditor to the business.

He, unfortunately, did not provide the basis upon which this would be accomplished, or give the amount of money for which the Government was already in the hock for its interventions at Long Pond and the Monymusk factory in Clarendon. He, however, said there would be scaling back over the next year, with the administration to provide only J$50 million in subsidies to farmers in the vicinity of these two factories to transport their sugar cane to other facilities.

The issue here is that taxpayers were not intended, at this time, to be putting even a dime into the sugar industry, the Government having ostensibly divested the assets of the Sugar Company of Jamaica (SCJ) eight years ago. The SCJ, at the time — having twice been previously divested before finding its way back into the hands of the Government — had accumulated deficits in excess of J$30 billion and was losing up to J$5 billion a year.

Indeed, the industry had limped along for decades only because of preferential markets and prices in the European Union, which Jamaica and its associates in the African, Caribbean and Pacific group of countries were on the verge of losing.

But it was hoped that the entities that acquired the assets, the Chinese firm COMPLANT (Monymusk, Frome, Bernard Lodge); Everglades Farms (Long Pond); and the Seprod Group (Golden Grove) would have a profitable go at the business.

That hasn’t happened, despite pumping much cash into the operations. Indeed, last year, Everglades decided to mothball its plant, until Mr Samuda decided to operate it on a shortterm basis. Then COMPLANT concluded that Monymusk would not be viable. So, they, first, gave up its lands and then announced that they would suspend operation at factory in 2017 and hand it back next year. Again, the Government was the rescuer, managing Monymusk on a creaking output.

Other sugar operations have not been particularly healthy. The privately owned Worthy Park Estate is believed to be losing money, and after suffering J$3 billion in losses, Seprod has revamped its business model, hoping to make money on the domestic and Caribbean markets selling branded products.

In the meantime, we sense Mr Samuda lurking in the shadows, fearing the loss of 30,000 jobs and, perhaps, US$60 million in export earnings, should the industry collapse. It is a fear that has, in the past, caused Jamaican governments to commit taxpayers to bailing out the sector, and Mr Samuda to embrace moral hazard when Long Pond and Monymusk went bust.

The Government needs a clear strategy for sugar, including one that contemplates Jamaica without the industry.