A failed decade of sugar privatisation

A decade has elapsed since the Government last sold its sugar assets to private owners, including a foreign investor.

The six factories were supposed to become profit-making machines after serious retooling.

But the programme has largely failed, as did the other efforts at privatisation before it, and four of the factories that were divested have now been shuttered.

One study indicates it could take around $40 billion or more to mount another rescue.

In the meantime, some investors have retreated further from sugar and closer to rum, including estates that were already in private hands.

Under the 2009 round of divestment, Seprod took over the Duckenfield factory in St Thomas; Everglades Farms Limited, headed by the Hussey family, took over the operations of Hampden and Long Pond; and Chinese-owned Pan Caribbean Sugar Company acquired Frome, Monymusk and Bernard Lodge estates.

Based on various news reports, the investors have poured no less than $14 billion, and possibly much more, into the factories over time: Seprod has copped losses of more than $4 billion; Everglades to $3 billon; and reports up to 2012 suggest that Pan Caribbean had spent $6.3 billion to that point.

Today, only Frome and Hampden remain in business. And cane production is on the wane.

“You can’t produce sugar without sugar cane,” declared Karl James, chairman of the Sugar Association of the Caribbean, who is not so sure that a viable future for sugar is still possible.

Worthy Park Estate, Appleton Estate and New Yarmouth were already in private hands, and are still standing. The two owners of those estates are now partners in the retail sugar market.

Pan Caribbean Sugar shuttered the Bernard Lodge factory as early as 2010, preferring to truck cane to Monymusk, which in turn was shuttered after more than $1-billion worth of government intervention. The vast acreages of sugar cane on the Vere plains are going into rum production. Frome continues to churn out sugar but is hampered by low supplies of cane to mill.

The Husseys also gave up on Long Pond but Hampden remains standing as a rum distillery and producer of Rum Fire rum.

The most recent exit in July of this year was Golden Grove Sugar Company, the subsidiary used by Seprod to own and operate the former Duckenfield factory, after the conglomerate decided it could no longer tolerate the cash burn.

“We tried everything, but just couldn’t manage,” Seprod CEO Richard Pandohie said at the time.

The sugar sector is now around half its previous size and still seen as in decline, but there is no indication that sugar won’t be part of Jamaica’s future commercial and agricultural story, albeit that some believe the tale will never be one of profit.

The question that remains, however, is how much, or what kind of state assistance it will take to keep the sector alive in the future, and how willing future governments will be to provide any type of lifeline. Those issues were said to be central to a crucial meeting of sugar interests held in Mandeville on October 24.

Today, if all factories that are still in operation were to produce at full capacity, the 150,000 tonnes they would churn out would be just shy of the output in 2014 –the peak year for production during the decade of privatisation – when the six factories churned out 154,769 tonnes, says Allan Rickards, chairman of the All-Island Jamaica Cane Farmers Association, the AIJCFA.

But none of those factories are hitting their capacity – far from it. And Rickards and other industry watchers fear that if action isn’t taken to cauterise sugar losses, the sector will lose its lustre entirely after more than 350 years as part of Jamaica’s economic fabric.

Sugar hit its peak in 1965 when Jamaican factories produced a historic 514,825 tonnes of the sweetener. Its second-highest output was 366,411 tonnes in 1975, according to numbers from the Sugar Industry Authority.

In the 1960s, all sugar estates were privately owned and the estates occupied a position of leadership in the industry, with government playing a minor role.

This changed in the 1970s, with the government playing a greater role through regulatory and ownership changes.

By the early 1990s, with high levels of accumulated debt, the Government sought to return sugar production to private hands, only to reacquire the factories later in the same decade.

With even more accumulated debt, then Finance Minister Omar Davies sought to privatise the government-owned sugar factories in 2003. The programme would last six years and be completed by a different administration.

“When Omar Davies first spoke of divestment, he established three criteria: deep pockets, vast experience, and a reputation to protect,” said sugar marketing expert Karl James.

In 2012, then Agriculture Minister Roger Clarke tabled a Ministry Paper disclosing that the government had absorbed at least $35.58 billion of sugar debt that had accumulated since 1999, when the state “assumed responsibility for Frome, Monymusk and Bernard Lodge estates, consequent on the failure of the previous sugar divestment to Wray & Nephew, Manufacturers Merchant Bank and Booker Tate Group in 1994”.

The latest privatisation, too, is largely seen as a failure, and not only in financial terms. Industry output in 2019 was less than half the output in the year of divestment, according to numbers provided by James.

In 2009, production was 125,000 tonnes; in 2011, it rose to 139,000 tonnes; and peaked at 154,769 tonnes in 2014. For the crop year ending July 2019, production was barely 60,000, James told the Financial Gleaner.

Coincidentally, in 2010, nearly the same amount, 56,000 tonnes, was produced by just three factories – Frome, Monymusk and Bernard Lodge – the latter two of which are now shuttered.

Frome’s output for this crop year was 19,000 tonnes. It’s the country’s largest sugar factory, and with that performance, James is not sanguine that Jamaica still has a future in sugar.

“At this rate you must question it,” he said. “We can’t continue like this,” he added, citing the low level of cane production.

James and Rickards are of the view that more careful husbandry of sugar lands would have yielded better production, which, in turn, would have led to better utilisation of the factories.

Lack of understanding

Neither is happy about the role of Pan Caribbean Sugar. They say a lack of understanding of farming practices and the absence of timely inputs caused the failure of sugar crops at Bernard Lodge, then Monymusk; and that, in time, Frome will follow.

But if Pan Caribbean misread the sector, or were too optimistic about its deliverables, it is not alone. Golden Grove and before it, Long Pond, which were taken over by Jamaicans, also failed to make a success of their operations.

On market entry, Pan Caribbean also demanded and got its own licence to market the sugar it produces – a concession from the Government that would end up fundamentally redesigning the distribution arrangements for not only raw sugar, but also packaged sugar in the retail market that emerged from the decentralisation.

Seprod-owned Golden Grove was next to follow Pan Caribbean, then Appleton and Worthy Park. The result was that Jamaica Cane Product Sales, which previously monopolised sugar marketing under licence from the SIA and was headed by James, was stripped of all its business and the company is now in the final stages of being wound up.

For Rickards, the question of efficiency is critical.

“When you are required to be producing at 91 per cent and you’re actually producing at 70 per cent, then that’s a prescription for disaster. This level of inefficiency has been with us for years. It didn’t creep up on us one day; what we’re reaping is the whirlwind,” he said.

Pan Caribbean Sugar has handed back the Monymusk factory and sugar lands to the Government, and James is a part of a task force dedicated to finding willing partners for the shuttered Clarendon operation.

“I have said to people, ‘Find a group that will take over Monymusk, get it up and running and you will make enough bagasse to provide you with all the energy that you need without relying on the grid, and you can sell excess power to JPS’,” he said.

Rickards supports the idea. However, he is more inclined to lobby for a comprehensive industry plan.

Citing the work of European Union consultants, he said it will take more than US$300 million to make the Jamaican sugar industry viable.

After 10 years and multiple billions invested, and lost, Rickards says the sector needs a plan, not quick one-off fixes.

“What went wrong is that the inputs were not timely and not consistent. Whatever was done was all rescue missions that were very hurriedly put together,” he said.

neville.graham@gleanerjm.com