Sugar Industry in trouble…Booming rice sector could still go bust – Dr. Clive Thomas

Those economic time bombs…Booming rice sector could still go bust – Dr. Clive Thomas

Economist, Dr. Clive Thomas

Dr. Clive Thomas

JUNE 14, 2015 | BY |Given his analysis of the economy and its revenue earners, local economist Dr. Clive Thomas believes that while the rice market may be booming at this point, certain factors affecting it, leaves the industry poised for a dispiriting future. He believes that it could very well be on the brink of a collapse.

In his recent writings, Dr. Thomas opined that while the sugar commodity life cycle for Guyana is in long-term decline, rice has been in a marked upswing. Contrarily, he said, “The ticking time-bomb that rice is perched” on is due to three factors. He listed these to be explosive growth of output, increasing difficulty in finding lucrative markets and the level of unit production costs. 

The economist noted that rice output has grown explosively in the 2010s; rising by more than 100,000 tonnes annually since 2012. He said that much of this expansion has been fuelled by Government support to both supply (production) and demand (finding lucrative markets).

He said, “As is common knowledge, the Venezuelan market is at great risk generating a potential demand/ supply market imbalance. This imbalance risks a collapse of rice and paddy prices later this year, thereby impairing livelihoods, in contrast to what prevailed in the first half of the 2010s.”

In an interview with Kaieteur News last week, the economist opined that should Guyana fail to deal with the aforementioned factors with great haste, then the sustainability of the rice industry could prove to give the new government, a similar kind of hell it is facing in trying to nurse the ailing sugar industry back to good health.

Sugar Industry in trouble as well:

Turning his attention to “the ticking economic time-bomb on which the Guyana Sugar Corporation (GuySuCo) is perched”, Dr. Thomas said that whether this is “politically triggered” with or without malice, its underlying dynamics plainly indicates an explosion in the not- too- distant future.

He reminded that in his previous columns, he restated his long-held conviction that, at this stage of the long-term sugar commodity life-cycle in Guyana: “the industry had passed its tipping-point; thereby dashing hopes of an orderly reform and reconstruction”.
The economist said that GuySuCo has been producing over recent years, if not decades, less and less sugar at greater and greater unit and total costs; while its unit sale price has been declining. He said that the logic of such a sequence is that GuySuCo has reached a point of no return.

Going forward, Dr. Thomas opined that the entity can remain open over the short to medium-term in only one of two possible ways.
“These are either through the provision of regular direct official bailouts and/or increasing borrowings and indebtedness, based on government guarantees. Clearly neither of these is sustainable, given GuySuCo’s present indebtedness, which already exceeds $90 billion and is projected to remain at this level through 2017,” he added.

He said that based on available data on the sugar company, only a distressing picture of the state-of affairs of the company becomes very clear.

The economist said, “Thus, in recent years, sugar output has been at its worst levels in four decades. It produced on average 320,000 tonnes of raw sugar back in the late 1960s to early 1970s with fewer assets.”

Dr. Thomas added, “Moreover, its present day unit production cost, at US0.40 per lb in 2013, has been rising, even though GuySuCo had projected in its Strategic Plan 2013-17, a decline from this year.”

He said that indeed, unit cost has been frequently about three times the world price of raw sugar. The economist said that not surprisingly therefore, net profit before tax has been negative through 2014, even though GuySuCo had, in its Plan, projected a return to profitability this year. He said that this is obviously impossible.

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Comments

  • De Castro  On June 16, 2015 at 2:18 am

    Given the facts from our learned comrade of how precarious both of Guyana s major industries are perched what recommendations does suggest to avoid/sustain these industries ?
    Now that we have the “nuts and bolts” of the situation how should we go about “fixing” things ?
    let’s hope the answers are forthcoming….recommendations/suggestions on
    what action/decisions should be implemented now ?

    Seems there are more questions than answers in this article.
    Await responses ASAP.

    In anticipation

    Kamtan

  • Hubert Hintzen  On June 16, 2015 at 11:46 am

    The costs placed on the industry of the two new mills (Pln. Skeldon and Pln. Enmore) mills which seem to be – although new – in a constant state of repair/disrepair, have greatly reduced the possible output of Guyana’s previously great sugar industry. As a child growing up in the then British Guiana, there were more lands under sugar can production than there are today, this being another factor that has affected the sugar industry. Another factor (although I cannot vouch for its veracity, since I no longer live in Guyana and have not visited since 1968) is I have heard that there are times when entire crops have not been reaped and left for decay, or also have been cut, but not transported to the mills, and even some that made it to the mills did not make it to the grinding stage, since the very mills were under a state of repair, the cut cane being left to rot in the transport punts. We need sugar mills that can function 365 per year (of course with some maintenance) I remember as a child the great plantations (Skeldon, Port Mourant, Albion, Blairmont, Diamond, age has its effects and I cannot remember the others such as those on the East Coast, Demerara and the West Bank and West Coast Demerara.)

  • guyaneseonline  On June 16, 2015 at 2:06 pm

    Skeldon’s failure compounds sugar woes – Vieira
    March 13, 2014 By GuyanaTimes
    Says: Former PNCR Member of Parliament Anthony Vieira

    Former People’s National Congress Reform (PNCR) Member of Parliament Anthony Vieira zoomed in on the consistent failure of the Skeldon Estate and Factory, as one of the reasons why an exit from the sugar industry was prudent.
    Vieira was among the speakers, at a news conference on Tuesday, who laid out the rationale behind the A Partnership for National Unity’s recommendation that the country quit the sugar industry and pursue ethanol production.

    Read more:http://www.guyanatimesgy.com/2014/03/13/skeldons-failure-compound-sugar-woes-vieira/

  • guyaneseonline  On June 16, 2015 at 2:20 pm

    Time to consider new type of sugar industry – Vieira
    -says GuySuCo operating at loss of $16,705 per tonne

    Stabroek News – 2013-11-25

    The Guyana Sugar Cor-poration (GuySuCo) is operating at a loss of $16,705 per tonne of sugar produced and the time has come to consider whether the industry can exist without remaining a national liability, according to former industry insider Tony Vieira.

    GuySuCo has been unable to meet its targeted production over the past few years and after a review of the corporation’s five-year Strategic Plan (2013-17), Vieira has concluded that GuySuCo is operating at a loss of $16,705 per tonne of sugar produced.

    Read more: http://www.stabroeknews.com/2013/news/stories/11/25/time-consider-new-type-sugar-industry-vieira/

  • de castro  On June 16, 2015 at 2:28 pm

    Another idea is to invite India or Brazil to assist in a “reformation” of sugar industry….as the two largest sugar producers on the planet…
    Privatisation of the industry another.
    Banks DIH was the first shareholding company established in Guyana post independence. LFSB would have nationalised it.😀

    Cutting and punting is one of the most labour intensive and gruelling jobs on the planet….surly mechanisation is way forward.
    Let’s hope the correct decisions by the political class is made….sooner the better

    My spin
    Kamtan ukplc

  • guyaneseonline  On June 16, 2015 at 2:36 pm

    Beleaguered Skeldon sugar factory should switch to ethanol, aquaculture – Vieira
    Stabroek News- 2014-03-12

    The Guyana Sugar Cor-poration needs to cut its losses and diversify the industry by getting into ethanol production, according to industry expert and member of APNU, Tony Vieira.
    Vieira, a former PNCR-1G MP, yesterday proposed that GuySuCo seriously consider ethanol production at the Skeldon factory citing the low quality canes, “amateurish mechanization” and poor field conversion among other issues surrounding dismal sugar production over the last few years. He said that instead, GuySuCo could begin ethanol production with the ultimate goal of getting into aquaculture farming.

    Read more:
    http://www.stabroeknews.com/2014/news/stories/03/12/beleaguered-skeldon-sugar-factory-switch-ethanol-aquaculture-vieira/

  • de castro  On June 16, 2015 at 4:17 pm

    A feasability study is essential and political decision based on that study
    made yesterday not tomorrow.
    Get it wrong and get deselected
    Get it right and save tax payers money

    That’s why they were elected.
    Decisions decisions no dilly dallying please
    Just get on with it…..before it is too late to save.
    Que sera

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