Guyana produces at US$800 per ton, sells for US$300

Guyana produces at US$800 per ton, sells for US$300

GuySuCo CEO, Dr. Raj Singh

GuySuCo CEO,
Dr. Raj Singh

April 3, 2015 | By KNews |  Low sugar price on the world market

The Guyana sugar industry is facing an even bleaker future with prices sliding to their lowest levels since February 2009. The dismally low prices come at a time when the country failed over the last three years to lock in a multi-year agreement with its biggest customer in Europe – Tate & Lyle – leaving the country at the mercy of the international markets.

This week, the price for a pound of sugar on the world market went down to US$0.12.
This simply means that should the prices on the world market remain on course – and there are not any immediate indications of significant movements upwards in the immediate future – Guyana would be selling sugar in the vicinity of a highly uncompetitive US$265 per ton.  

At the most, according to industry experts, the Guyana Sugar Corporation (GuySuCo) would only be able to rake in around US$325 per ton for its premium Demerara Gold from the Enmore Packaging Plant.
This is extremely significant if taken into account that GuySuCo’s top officials told Parliament last year that the entity is producing sugar for more than US$0.35 per pound.

In effect this means that GuySuCo is producing sugar at almost US$800 per ton, selling back at a highly unprofitable US$300 per ton.
For the layman, this means that GuySuCo’s losses from its sale of sugar are estimated at a shocking 60 percent for every pound of sugar produced. The prices on the world market have been compounding the situation on the ground for GuySuCo.

Its much-touted US$200M Skeldon modernization project has failed to live up to expectations, requiring more than double the amount of cane that other older factories require to produce sugar. GuySuCo has been blaming poor yields and labour shortages for its problems.

According to the United Nations Food and Agricultural Organization (FAO) this week, mainly due to improved crop prospects, sugar dropped a sharp 9.2 per cent since February to 187.9 points in March.
GuySuCo itself has been facing severe cash shortages.
Between 2013 and 2014, Government through the National Budget plugged $10B (US$50M) into GuySuCo despite misgivings from the Opposition. The Corporation had since last year been promising to table its revised Business Plan for 2014-2017.

US$100M NEEDED

Reportedly, GuySuCo is banking its return to profitability on a five-year cash injection from Government for $20B (US$100M) to fix the Skeldon factory, expand cultivation and improve yields, introduce more mechanized harvesting, reduce inefficiency at some of its factories in Berbice and Demerara and from value-added products.
With Parliament not likely to green-light any subsidies in a hurry as Parliament has been dissolved for the May 11 elections, GuySuCo has been desperate for cash.

Demerara Gold sugar

Demerara Gold sugar

GuySuCo is getting more for its packaged Demerara Gold sugar, but not enough to help its losses.

Government has taken over the more than US$100M in loans owed for the Skeldon factory.
Recently an attempt to purchase cane lands for housing via a $3B loan from the Guyana Geology and Mines Commission (GGMC) was blocked, after the Opposition objected over the legality of the transaction.
Government was hoping that the Ministry of Housing/Central Housing and Planning Authority would have been accessing the loan and paying GuySuCo for the lands.

Winston Brassington

GPL Chairman/NICIL head, Winston Brassington

On Wednesday, in another development, GuySuCo announced that it had found a way out of the cash crisis.
During a press conference at the National Communications Network (NCN) studios, GuySuCo and the Guyana Power and Light Inc (GPL) announced a US$30M deal from the sale of the co-generation plant at Skeldon factory. That plant had been built at a cost of US$32M and commissioned in 2009.

Skeldon Energy Inc. (SEI), a special company owned jointly by GPL and National Industrial and Commercial Investments Limited (NICIL), will be funded with equity financing – US$5M from NICIL and US$4M from GPL.
GPL, along with local and international financial institutions, will be plugging the balance of US$21M. Repayment of the financing will be via the sale of power under agreement to GPL and GuySuCo, it was disclosed. SEI’s takeover came into effect from April 1, 2015.

The GuySuCo power-generating assets consist primarily of three Wartsila power plants with an installed capacity of 10 MW, and a co-generation bagasse plant with an installed capacity of 30MW.

SEI has contracted Wartsila to rehabilitate, operate and manage the combined power plants effective April 1, 2015.  Wartsila will provide financing for the rehabilitation of the 10 MW plant.

NO OFFER FROM TATE
Last week, GuySuCo denied accusations from its unions that it failed to enter into a three-year agreement to lock in the high prices. It said that Tate & Lyle, its European customer, made no such offer for a three-year agreement from 2014 to 2017.

GuySuCo did not comment on the fact that the unions were not speaking about the future but what happened in the last three years with Tate & Lyle.
“In marketing its sugar, GuySuCo has consistently pursued the best possible trading arrangement and in 2014 has spot traded at the premium available prices on the EU market, while concentrating on selling its quality sugar to the highest priced market, such as the Caribbean,” GuySuCo said in its defence.

GuySuCo claimed that the Skeldon factory is ready to deliver an average grinding rate of 250 tons per hour, over a 7-week grinding period, for 233,685 tons of cane production. The estate is expected to conclude the first crop in the first week in May, before the mid-year rains.

The unions have been calling for a forensic audit of GuySuCo amidst the embarrassing performance and failure by its officials to produce a business plan.
GuySuCo’s officials have been silent on the issues and have hired public relations consultant, Kit Nascimento, to assist them.

Related Stories:

  1. Skeldon set for disastrous first crop after late start
  2. No turnaround .…GuySuCo produces sugar at double world market price
  3. Sugar turnaround…GuySuCo considers moving HQ to Enmore, selling off Ogle lands
  4. Bitter sugar politics…AFC demands forensic audit of GuySuCo billions, Skeldon factory
  5. Skeldon Sugar Factory Loan…Govt to repay GuySuCo debt – Ramotar
  6. GPL gets financing nod for US$65M modernization project
  7. Inefficiency and waste…GPL forks out millions to truck fuel across Harbour Bridge
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Comments

  • albert  On April 3, 2015 at 4:20 pm

    One does not need to have a PhD in finance to see sugar production is in trouble in many parts of the world. The basic problem in Guyana is government involvement in what is a private enterprise. The two together just dont work. In Hawaii the private owners have found a way out. Multi farming to provide food for tourists and large scale planting of pineapple.

  • de castro  On April 3, 2015 at 4:42 pm

    Absolute disaster….
    Supermarkets in UK …demerara sugar is sold at $3 per kilo 2.2lbs.
    Who is making the profits?

    Supermarkets usually operate on a 10-20% mark up.
    It would be interesting to know what they pay and how much to their suppliers.
    At a guess its $1.60 per kilo.?
    Was a shock to read that world market price was $0.12 cents per lb.

    GuySuCo should come clean on how they Market DEMERARA sugar.
    Let their public relations department offer some explanation on
    how they market sugar….or the public will be suspicious of corruption
    in the industry.
    Also value added avenues should be investigated.

    Wasting tax payers money on subsidies is “stupid economics” in the long term….
    in the short term more acceptable.
    Markets can go up or down so binding/enforceable contracts is way forward.
    It is very complex “free market principles” best left to marketeers to conduct.
    Obviously GuySuCo is doing something incorrect/or illegal.

    Europe had wheat and butter mountains also wine lakes.
    Today its so fine tuned …the supply/demand ….it is not necessary
    to overproduce/over store…..governed by world market prices.

    That’s how global our world is today.

    Que sera

  • Deen  On April 3, 2015 at 6:40 pm

    I totally agree with Albert and Kamtan. It’s a no brainier that you cannot run a business or industry that’s losing money, bankruptcy will be the end result. A lot of bad business decisions have been made by the Guyana government and the modernization of the Skeldon Sugar Factory was one of them …..a US$200 million mistake.
    .It’s said a fool is someone who continues to do the same thing and expects different results. The Guyana government has been most foolish in their management of the sugar industry. Over the years they had adequate indications that the sugar industry was increasingly failing due the the fact that it cost more to produce a pound of sugar than it was sold for. The government should have taken the initiative to explore alternative uses and application of the land and available resources. Perhaps more emphasis on rice production and mixed agricultural products willful be much more profitable.
    It is obvious that sugar has become bittersweet and GuySuCo is in poo-poo creek. A sad end to a once thriving industry.

  • de castro  On April 3, 2015 at 7:11 pm

    So how does one “salvage” this “white elephant”….
    Replace sugar with other crops.?
    Change land usage from agriculture to housing or industrial….?

    Cane cutting is not only “labour intensive” it is “unprofitable”
    Brazil uses its cane to produce ethanol for energy generation.
    Maybe sugar cane can be used as energy source.
    No need for another white elephant ….”hydro dam”…as is being suggested.

    Solar energy is the future ! Embrace it with subsidies if necessary until it
    becomes “profitable” “viable” acceptable.

    Glad am not a Guyanese tax payer.

  • Clyde Duncan  On April 4, 2015 at 1:50 am

    Mill Owners [Pakistan] Manipulating Sugar Cane Prices: http://tribune.com.pk/story/806822/sugar-sugar-mill-owners-manipulating-sugarcane-prices/

  • de castro  On April 4, 2015 at 4:29 am

    Clyde
    Thanks for that clip…

    Idiots feel they can “fix” the free market without consequences.
    Bob Diamond of Barclay’sshould have been jailed for his LIBOR”
    fixing (interbank rate fixing) ….. Thatcher and Regan supported the
    “Free market” in principle politically .,.so do I….
    Water finds its own level.
    Today we have a strong pound ….number one current currency….
    based on that free floating principle.
    The swiss were proping up the euro………no longer do so today.

    Dollar is on “ganja” ….how long it will last ?

    Sorry about the politico/eco diversion..

    Maybe sugar should become
    privatised industry in guyana.

    It is too big to survive.

    Que sera

  • Clyde Duncan  On April 4, 2015 at 9:03 am

    Some of these inefficiencies may be a result of manipulation in the market place. The big guys could, say, bring down the price of gold by dumping a ton or two in the market place for sale; or short-sell a stock … whether it is currency or sugar price manipulation, there may be more to it than meets the eye.

  • Clyde Duncan  On April 4, 2015 at 9:28 am

    Here is material worth the read – Globalization and Its Discontents by Stiglitz: http://books.wwnorton.com/books/Globalization-and-Its-Discontents/

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