9.I.1 Guyana’s sugar is produced by a state-owned enterprise, the Guyana Sugar Corporation (GUYSUCO). Although a parastatal, the corporation has been managed since 1990, under a management contract, by a privately owned British Company, Booker-Tate.

9.I.2 The company’s mission statement reads as follows: "To establish world-class standards in agricultural practices, sugar factory efficiencies, environmental protection and the productive use of human resources - in order to achieve sustained profitability in any foreseeable marketing environment - so that the sugar industry can make a full contribution to the economic, technological and social progress of Guyana."

9.I.3 The sugar sector, which is export-oriented, contributes immensely to Guyana’s socio-economic development: 16 percent of the country’s total GDP and 30 percent of its agricultural GDP are derived from this commodity; it is the largest net earner of foreign exchange in the country; and it is the biggest corporate contributor to public revenue. Moreover, it directly employs 25,000 people or about 10 percent of Guyana’s labour force; indirectly, it absorbs a further 10 percent of the country’s citizens.

9.I.4 Perhaps of as great importance are the services which GUYSUCO provides to the communities in which it operates, in the areas of education, training, health, housing, water and recreation. Indeed, distinct sugar communities exist in Guyana, with all the characteristics of company towns.

9.I.5 Although Guyana had produced 395,000 tonnes of sugar in 1971, output had dropped to about 130,000 tonnes by 1990. Since then, however, production has steadily increased to over 300,000 tonnes in 1999.

9.I.6 GUYSUCO holds 164,000 acres of Guyana’s lands, all on the crowded coastland. Indeed, it is the largest agricultural entity in the country. On average, depending upon cultivation practices, and the disposition of land for human settlement, services and recreation, it occupies between 90,000 and 100,000 acres. It is estimated that about 50,000 acres of GUYSUCO’s land holdings are either lands which are not under cane, or lands which have been permanently abandoned.

9.I.7 GUYSUCO is a relatively high-cost producer of sugar. Its cost of production was US$0.23 per pound in 1995/96 and 1996/97, and US$0.22 in 1997/98. It is estimated that in 1998/99 the production cost was also US$0.22 per pound. This compared unfavourably with the production costs of the U.S.A., North East Brazil, Mauritius, India, Fiji, Australia, Guatemala, and Malawi, for example.

9.I.8 These production costs are not evenly distributed across Guyana. They are highest in the western regions of the country: in Wales, Uitvlugt, LBI and Enmore - the Demerara estates; and lowest in the other four of the eight estates which exist in Guyana: Skeldon, Albion, Rose Hall and Blairmont. The differences in productivity between these two groups of estates are partly due to agro-climatic conditions and, it is sometimes claimed, to contrasting management practices.

9.I.9 Despite its comparatively high production costs, GUYSUCO is able to sell almost all its production in Europe, the U.S.A. and in CARICOM countries. This is because of the EU/ACP Sugar Protocol; the EU/SPS programme; the USA sugar programme; and the Common External Tariff (CET) which CARICOM countries apply. These various agreements and arrangements give preference to the entry of Guyana’s sugar at prices that are usually higher than the so-called "world-market" price, or more properly, the price of sugar in the non-preferential market.

9.I.10 The fact that the value of the Guyana dollar has depreciated somewhat over the years has assisted GUYSUCO in the payment of local costs, such as salaries and wages, simply because the foreign exchange which it earns abroad realises more Guyana dollars and stretches farther.

9.I.11 Although some of the sugar-cane that is grown in Guyana is produced by farmers, as opposed to GUYSUCO’s estates, the country has the lowest farmer/estate cane ratio among CARICOM sugar producers. Thus, in the crop year 1997/98 the farmer/estate ratio in Barbados was 66:34; in Belize, and St. Kitts and Nevis 100:0; in Jamaica 53:47; and in Trinidad and Tobago 58:42. In Guyana, however, the farmer/estate cane ratio was 10:90, quite the reverse of that obtaining in the other countries.

9.I.12 Cane farmers in Guyana receive a higher proportion of the returns that are obtained from the sale of sugar than in any other country in the Caribbean region.

9.I.13 Even though extensive repairs have been undertaken in recent years, the eight sugar mills in Guyana are generally not only old, but obsolescent. Moreover, the small capacity of these mills does not permit GUYSUCO to benefit from the scale-economies that are inherent in modern mills, and that are necessary if the industry is to become competitive.

9.I.14 Much of the old farm machinery, with which GUYSUCO operated until the mid 1990s, has been replaced. However, the industry’s field operations are not as modernised and mechanised as they might be.

9.II GUYSUCO’S FUTURE PLANS

9.II.1 As has been noted, sugar production in Guyana is basically uncompetitive. In other words, were it not for the preferential treatment which it now receives, GUYSUCO would find it difficult to survive. In order to overcome this difficulty, GUYSUCO has formulated a plan which it claims, if implemented, will enable it to become "an entrepreneurial, customer driven, retail market oriented producer of top-quality sugar and associated value-added by-products, at a cost which will enable it to compete in any foreseeable market environment."

9.II.2 The objectives of the plan are to increase production to 435,000 tons per annum; reduce the costs of production to US 10 to 11 cents per pound; sell to more countries in CARICOM than they now do; increase the total volume of sugar exports to these territories; develop more regional markets; add value to the basic output through the production of special sugars, and the introduction of new pack sizes and packaging; establish a distillery, if this proves feasible; build a sugar refinery; and develop an intra-Caribbean market for refined sugar.

9.II.3 The implementation of the plan is to be phased. It includes, however, the following elements:-

- the construction of a new 350 tch factory at Skeldon (111,000 tonnes) from an expanded cane area;

- the designation of new lands for mechanisation;

- the closure of the Rose Hall factory, and the concomitant expansion of the Albion facilities to 415 tch (153,000 tonnes);

- the utilisation of diffusion technology at both the Skeldon and Albion factories;

- an increase of sugar production at other factories in order to secure another 171,000 tonnes of sugar per annum;

- the upgrading of agricultural practices, and the introduction of new varieties; and

- the co-generation of power from both the Guyana Power and Light Company and GUYSUCO’s own bagasse, for use in the new and expanded factories.

9.II.4 The company asserts that, if its plan were implemented, the benefits which would accrue to Guyana would, inter alia be as follows: an increase in gross foreign exchange earnings to a minimum of US$145 million per year, and net earnings of US$80 million; the generation of cash resources sufficient to pay dividends from the year 2006; a more equitable distribution of income; and the enhancement of rural wealth through, for example, an expansion in the utilisation of cane produced by private farmers, and increased levels of other economic activity.

9.II.5 The plan assumes that the current preferential markets will remain, albeit at reduced prices; that Guyana will retain its SPS/SP allocation; that this allocation would be augmented by amounts accruing from those CARICOM countries in which sugar production has declined and will decline and therefore fail to meet their preferential targets; and that sugar sales from Guyana to other CARICOM countries would increase to 80,000 tonnes. This last assumption is based on two considerations. First, that CARICOM, at present, imports 120,000 tonnes from outside the region; and second, that the imposition of its Common External Tariff would enable Guyana to be more competitive in CARICOM markets than producers from outside the regional arrangement.

9.II.6 Other measures which would be taken to improve productivity encompass the restructuring of the administration and management both on the estates and at the corporation’s head office; the amalgamation of contiguous estates; the out-sourcing of a range of activities and services wherever these prove to be cost-effective; the mechanisation of cane loading; and the introduction of modern processing technology into existing factories.

9.II.7 The new plan envisages, for the Skeldon expansion, the addition of 2,120 hectares of new land at Manarabisi, and a further 6,000 hectares between Skeldon and the Canje river. Thirty percent of the production from this increased area will be derived from cane farmers.

9.II.8 For the Albion/Rosehall consolidation, 2,476 hectares of new land, south of the 43 Koker expansion, will be taken over. There will also be an expansion of cane farmers' land at Blairmont. Moreover, temporarily abandoned land in the East Demerara area will be brought back into cultivation.

9.II.9 The total costs to be incurred would be US$200 million: US$87 million for the new Skeldon operations; US$64 million for the expanded facilities at Albion; and US$49 million for the refurbishing of other estates. This amount excludes routine replacement expenditure and contingencies. It is projected that these amounts would be raised from loans (US$130 million); the company's own resources (US$40 million); and the sale of land (US$30 million). The possible sources of the loans that are discussed in the plan are listed as offshore borrowings denominated in Euros/US dollars to match revenue streams; concessionary loans to meet providers' requirements; commercial-corporate bonds/commercial paper to be issued for local borrowing; suppliers' credit; and lease purchases.

9.III.1 Prices and Markets

9.III.1.1 The importance of the sugar industry to our country's development, now and in the foreseeable future, cannot be over-emphasized. On the one hand, it is evident that a strategy must be formulated which would ensure that the sector continues to contribute, and indeed increase, its contribution to the country's well-being. On the other hand, because many of the factors which might influence the degree of its contribution to our economy are beyond our control, it is imperative that we proceed in a measured manner and not over-commit our scarce financial resources to a programme of development that might be founded on insecure assumptions and premises. The assumptions to which we refer are the future world price of sugar, the share of the CARICOM market for Guyana's outputs of sugar and sugar products, and Guyana's ability to compete in the globalised world.

9.III.1.2 All the evidence suggests that at least to the end of the first decade of the twenty-first century, Guyana would continue to have preferential access to the EU sugar market. In addition, if the current CARICOM agreements hold, as we fully expect them to do, access to this sugar market is also assured. It cannot be stressed too much, however, that what is being emphasized here is access. To sell in these accessible markets, Guyana's sugar export prices must be competitive.

9.III.1.3 It is submitted that it would be a somewhat futile exercise for us to engage in calculations which would somehow indicate what will be the future world price for sugar after the current preferential prices are reduced. It would be an exercise in futility for three basic reasons. First, a time horizon of ten years is too long for any meaningful forecast to be made in regard to the price of a commodity such as sugar, simply because technologies tend to change, there may be significant structural changes in the political economy of the industry, and also because it only takes two to three years to bring idle land into cultivation. Second, there is really no "world price", because most of the world's sugar is either sold in preferential or in home markets in which prices differ considerably, are often subsidised, and are definitely not market prices. Third, the "residual sugar price" or the non-preferential sugar price, has fluctuated wildly over the last decade and a half. There is consequently no reliable trend on which to assess prices, and even if there had been such a trend, because the residual market is only a portion of world consumption, such a "trend" would have little validity in a non-preferential world.

9.III.1.4 It follows, therefore, that it is not entirely convincing to base the future of what is certainly one of the most important industries in the country merely on forecasts of future prices (no matter who has made these forecasts). What has to be done, in undertaking the hazardous task of assessing the country's future competitiveness in this area, is to examine the price structure of both GUYSUCO and competing producers, in order to determine which producer, or which country, would have the competitive edge.

9.III.1.5 It should be emphasised that we are not suggesting that Guyana will not be in a position successfully to compete with those countries which already incur lower costs. What we are asserting is that GUYSUCO can do so only if radical changes are made in its sugar cane production methods, particularly in West Demerara; and in its sugar cane procurement practices and the prices it pays for farmers’ cane. In addition, its management and administration of the various sugar estates will have to be tighter and less costly; and the productivity of its factories will have to be considerably enhanced. Moreover, transportation and shipping costs, which comprise a relatively large proportion of the corporation’s expenditure will have to be considerably reduced. Furthermore, in order for GUYSUCO to improve its competitiveness, it will have to mechanise a significant proportion of its field operations.

9.III.1.6 The position is not one of unrelieved gloom. On the contrary, it appears that, for several reasons, GUYSUCO is in a position to meet these requirements for increases in productivity and, therefore, of becoming competitive.

9.III.1.7 First, the evidence suggests that if a controlled drainage and irrigation regime is applied to the West Demerara estates, the water content of the soils could be considerably reduced at specific periods in the growing cycle, and, as a consequence, the sucrose content of the cane would be significantly increased. In addition, there are methods of ripening which also could contribute to the enhancement of the cane’s sucrose content. Indeed, there is much evidence demonstrating the close correlation between the application of these agronomic and chemical methods and the profitability of the West Demerara estates.

9.III.1.8 Second, it is possible to reduce the unit cost of cane purchased from private cane farmers, to bring it into line with the prices paid to similar producers in other countries, by assisting them to increase their productivity. If this were done, the total financial benefits accruing to the farmer would be most rewarding, but GUYSUCO’s unit costs would be reduced. In other words, it would pay to devote more resources to the training of cane farmers in all aspects of sugar cane production.

9.III.1.9 Third, there appears to be a shortage of administrative managerial, and technical skills on several estates. This affects the company’s productivity and competitiveness. If steps are urgently taken to train the required personnel, or even to hire professionals of competence, GUYSUCO’s competitive position would be much improved.

9.III.1.10 Fourth, with the company’s plan to purchase a new modern factory, and to amalgamate others, not only would productivity be much improved, but the company would be able to enjoy the benefits of scale economies that are now denied it. Moreover, the company’s energy costs, which are a not insignificant portion of its current expenditure, would be reduced, because of its programme to utilise bagasse in much of its future production. In addition the new mills would be much more efficient than those which are now being utilised.

9.III.1.11 Fifth, with the improvement of the deep-water facility in the Berbice River, shipping and transportation costs will inevitably be lower.

9.III.1.12 Sixth, GUYSUCO proposes to mechanise its loading operations. This, too, will reduce costs.

9.III.1.13 Similar considerations apply, in large part to the East Demerara estates, which are currently the highest cost producers within GUYSUCO. They are high-cost producers mainly because, according to the corporation, they utilise a high proportion of relatively poor soils, factory capacity at Enmore and LBI is under-utilised, and management’s performance is less than optimal. Steps should therefore be taken to bring new lands into cultivation as far as possible, to replace the mills over time by more efficient modern units, and to improve the effectiveness of the management.

9.III.1.14 Our own calculations indicate, when all these factors are taken into account, that GUYSUCO would be able to reduce its production costs to about US$0.10 per pound. Indeed, it is reasonable to expect that there would be a market for 500,000 tonnes of sugar per year, and that accordingly, GUYSUCO’s unit production costs would be further reduced. On the other hand, our investigations suggest that those countries which now produce sugar at costs that are lower than Guyana’s have in several respects, already attained optimal efficiency. It is most unlikely therefore that they would be able significantly to reduce costs in the future.

9.III.1.15 Moreover, Guyana possesses an additional advantage because of its membership of CARICOM. CARICOM currently purchases 150,000 tonnes from third countries to meet their needs. Furthermore, it appears that because of production costs which range between US$0.40 to US$0.48 per pound, the governments of Barbados, Jamaica, St. Kitts and Trinidad effectively subsidise sugar production in their countries. This is most unlikely to continue. The captive CARICOM market can therefore provide a most lucrative cushion for our production.

9.III.2.1 The new programmes that are planned for the rejuvenation and expansion of the industry would require a number of personnel in new disciplines, and an upgrading of the skills of many of those who are now employed in GUYSUCO. Indeed, there appears to be a shortage of managerial and technical skills in every major activity within the industry. Training will be needed, for example, in co-generation, in the operation of the proposed distillery, in the packaging and manufacture of special sugars, and in sugar refining practices. Moreover, the management, administrative and negotiating skills of GUYSUCO’s top Guyanese need to be somewhat enhanced. It will be necessary also to train both factory and field workers in many areas which will be innovations for most Guyanese: in the new factories, and with new types of field machinery.

9.III.3.1 Land issues in Guyana are most complex. It is for this reason that a chapter in this Strategy is specifically devoted to this topic. However, because GUYSUCO is the largest single occupier of land on Guyana’s coast, its land holdings and their disposition deserve special consideration. As pointed out earlier, GUYSUCO holds 164,000 acres of the country’s land. The average size of its eight estates is therefore approximately 20,500 acres. Albion, which occupies 28,166 acres is the largest, while Wales with 14,232 acres is the smallest. About two-thirds of the land held by the corporation is leased from the State, while the remaining one-third is owned by the entity. However, because GUYSUCO is a state-owned enterprise, in reality all the land held by the corporation is owned by the State, or by the people of Guyana.

9.III.3.2 Much of the land which GUYSUCO now controls is prime land. Furthermore, even the company's most expansionary plans will not require them to utilise all of their land holdings. In contrast, the prospects of many of the other economic and social developmental activities that are put forward in this NDS would be greatly improved if the unutilised lands were to be taken back by the State. This is true for housing programmes; for the development of other types of agricultural products, including aquaculture; for the location of industries; and for the siting of commercial activities. In addition, it has been argued that freehold land on the coast of Guyana is remarkably high-priced, partly because the State owns so much of it, and partly because GUYSUCO holds a relatively large proportion which is not being beneficially occupied. Steps should therefore urgently be taken to rationalise the use of the land now held by GUYSUCO before it proceeds with its plans. For, as has been pointed out, it intends to sell a significant amount of land for commercial uses in order to raise money to implement its future programmes. It must not be allowed to do so, on its own terms. In other words, it must raise the short-fall of US$30 million, that would be occasioned if it is not permitted to sell the nation’s land, from commercial loans or other sources.

9.III.4.1 Employment costs (including incentives and non-pecuniary worker benefits) account for over sixty percent of the cost of producing a tonne of sugar in Guyana. It is evident that the company intends further to reduce its labour force in order to curtail employment costs, particularly as it would be impossible and undesirable to reduce the package of incentives now earned by the workers. This almost inevitable reduction in the labour force is obviously a factor to be taken into account in the formulation of a national development strategy.

9.III.5.1 Private cane farmers produce cane at a higher cost than the estates, primarily because their yields are lower and the quality of their cane inferior. These defects in the product are in turn due to ineffective drainage and irrigation systems, the relatively primitive nature of the technology that is applied, and the inadequacy of their farming practices. In addition, the co-operatives and private groups which grow sugar cane, tend to be disorganised. Nevertheless, it is desirable, for social reasons, and, as we have seen, ultimately for financial reasons, that private cane farming outputs be increased significantly above their current low level. Accordingly, the inefficiencies that are inherent in the system will have to be rectified.

9.III.5.2 The present procedures for establishing cane prices are cumbersome and, more important, do not appear to be either equitable or to be designed to improve efficiency. There are two determining aspects of the present price structure for farmers’ cane: the method whereby the conversion factor from cane to sugar is derived; and the proportionate distribution of the net income from this sugar between the farmer and the processor. Both of these matters are dealt with in the National Cane Farming Committee Act, No. 29 of 1975 (as amended) which establishes that the so-called Puerto-Rican formula be employed to calculate the cane to sugar ratio. The appropriateness and accuracy of this formula have been fiercely challenged by Guyanese cane farmers, and by specialists in this area. Indeed it is now generally acknowledged that the Jamaican Recovery Cane Sugar formula is more accurate and equitable. There is obviously, therefore, a need to revisit this very crucial matter.

9.III.5.3 There are also problems in respect of the share of proceeds. It appears that cane farmers in Guyana are paid more than most similar farmers in other parts of the world. In the face of this, GUYSUCO seems reluctant significantly to expand their dependence on cane farmers. However, the returns to cane farmers are directly linked to the future of the company, be it through favourable sugar prices or efficient factory recoveries. It is evident, therefore, that the entire cane farming structure, from the organisation of farmers, the provision of inputs and extension services, to the methods of calculating both sucrose content and prices, be rationalised.

9.III.6.1 As has been emphasised elsewhere in this National Development Strategy, transportation costs for Guyana’s exports are generally higher than in most other countries. This is especially true for sugar. If we are going to be competitive we will have to remove those constraints over which we have some control: the absence of an adequate deep-water harbour, the dearth of bulk loading facilities, and the inadequacy of our current port administration.

9.IV.1 The objective of the sector is to improve the competitiveness of the industry so that it may increase its contribution to the development of Guyana.

9.V.1 The overall strategy will be (i) to utilise the most productive soils that are available within those agro-climatic areas which would yield the highest amounts of sugar at the lowest possible costs; (ii) to increase the productivity of the Demerara sugar estates by adopting more effective agronomic practices; (iii) to improve the quality of the milling process, through the establishment of new mills and the amalgamation of others; and (iv) to add value to the sugar cane raw-material through the expansion and deepening of the manufacturing process, the widening of the range of sugar based products that are produced, and the enhanced packaging of these products.

9.V.2 Between 2001 and 2005 a detailed plan for the diversification of economic activity in those areas in which the Demerara estates are located will be formulated and implemented.

9.V.3 This plan will include the establishment of special micro-credit facilities the provision of training in various disciplines, trades, crafts and entrepreneurship; and the provision of land for cultivation, housing, and business development on favourable terms. In other words, a comprehensive land settlement and land redistribution plan will be implemented.

9.V.4 At least two housing schemes, one in Western Demerara and the other in Eastern Demerara will be established. The measures and incentives described elsewhere in this NDS, particularly in the Chapter devoted to Housing, will apply.

9.V.5 The inhabitants of those areas will be encouraged specifically to engage in the cultivation of high-value non-traditional crops, aquaculture, and to establish specific micro-industries. They will be provided with relevant technical assistance and extension services.

9.V.6 The important point is to ensure that undue reliance is not placed solely on sugar in these districts, and that there would be available other suitable options for employment.

9.V.7 Although the main thrust of the sugar expansion programme would be in Berbice, i.e. Skeldon, Blairmont, Rosehall and Albion, where GUYSUCO’S plans for the extension of both milling and field capacity will be concentrated, sugar production in the Demerara estates will be made more competitive and, at the same time, an enabling environment for the creation of alternative development will be provided.

9.V.8 GUYSUCO’s overall production capacity will be increased to 500,000 tonnes of sugar per year.

9.V.9 Almost immediately, steps will be taken for all the land now occupied by GUYSUCO to revert to the State. The State will then lease to GUYSUCO, at normal rates, the land which it requires for current and future planned expansion.

9.V.10 After consultation with representatives of the cane farmers, the National Cane Farming Act will be revised in order to make it more equitable, to increase the involvement of a greater number of cane farmers in the production of cane for GUYSUCO, to reduce production costs, and to make Guyana’s cane more competitive.

9.V.11 New contracts, which will endeavour to be fair both to the cane farmers and GUYSUCO, will be negotiated.

9.V.12 Cane farmers will be provided with land to enable them to produce more cane.

9.V.13 Cane farmers will be trained in a range of agronomic skills to improve their performance. In addition, essential inputs and extension services will be provided to enable them to increase their productivity

9.V.14 Efforts will be made to involve the workers of the industry, the citizens of Guyana, the Government of Guyana and the company which now manages GUYSUCO in the ownership and control of the industry. To this end, twenty percent of the shares will be offered to Booker Tate as a strategic partner, 20 percent to the employees of the industry, 20 percent to the citizens of Guyana, and 20 percent will be retained by the Government. The remaining 20 percent will be offered to the world at large.

9.V.15 A "claw-back" clause will be inserted into the agreement, in order to ensure that at least for a period of ten years after privatisation, sugar will be produced by the Company in order that the social and economic structures that are attendant on the continuation of the industry are not unduly disrupted and jeopardised.

9.V.16 It is important that Booker Tate agree to purchase shares in the recapitalised company, not only because they appear to possess better leverage powers in the international markets, but also because their purchase of these shares would provide evidence of their financial faith in the industry, and in the development plans which they have assisted in formulating.

9.V.17 The financial resources that are required to implement GUYSUCO’s plans for the future will be raised though a consortium, put together by a lead banker, who will obtain the required amounts on the international market.

9.V.18 Intensive training courses will be mounted for all levels of the company’s employees, in order to prepare them for the expansion and modernisation of the industry.

9.V.19 The Jamaican Recoverable Cane Sugar Formula, rather than the Puerto-Rican, will be employed in determining the sugar content of the sugar cane supplied by farmers to the estates.

9.V.20 Because of the importance of the CARICOM market to the survival of Guyana’s sugar industry, special efforts will be made by the Ministries of Foreign Affairs and Trade to ensure that the terms of the Common External Tariff are honoured by all CARICOM members.

9.V.21 All import duties and consumption taxes will be waived for a period of five years, as for other industries.

9.V.22 The sugar levy will be abolished.

9.V.23 Mechanical loading procedures will be introduced. The possibility of engaging in mechanical harvesting, particularly in the new planting areas, will be seriously examined.