Editorial | Gov’t must get out of sugar

This week's announcement by William Mahfood's Wisynco that it is acquiring a 30 per cent stake in the sugar manufacturer Worthy Park Estate and taking over the distribution of all of the latter's products may be viewed merely as the corporate alignment of two companies leveraging synergies in a difficult environment.

But there are larger implications in this deal for Jamaica's sugar industry that require the attention of agriculture minister Audley Shaw. He has serious decisions to make.

Neither the cost of the Wisynco acquisition nor whether the deal involved a transfer of cash was disclosed. But Mr Mahfood's calculation that his group's distribution of Worthy Park's own-account sugar and rum will increase his outfit's sales by J$2 billion annually we assume equates to the bulk of Worthy Park's turnover, thus providing a basis for a guesstimate of the transaction's value.

WYSINCO'S TRANFORMATION

Under Mr Mahfood's leadership, Wisynco, over the last decade and a half, has nimbly transformed itself from the plodding manufacturer of mostly Styrofoam containers and PVC pipes to a major producer and distributor of beverages and other products. Taking a piece of Worthy Park not only allows it to add to its distribution line, but provides an opportunity to innovate with new products with a base in sugar and rum.

From that standpoint, this deal seems logical for Worthy Park. Having lost its protected market in Europe, Jamaica's small-scale sugar industry is globally uncompetitive - a problem exacerbated by declining price for the commodity on world markets. In the circumstance, the future of the Jamaican industry is bleak, unless it innovates, as it is presumed that Wisynco/Worthy Park hopes to do, or our government reverts to its old habit of bailouts.

Our fear in that regard is that the Holness administration, despite its declarations to the contrary, may be on a slow, somnambulistic march into the sector, from which it extricated itself a decade ago, having been convinced, or we thought it was, of its inability to absorb the industry's then annual losses of over J$5 billion, on top of an accumulated debt of more than J$30 billion. As some of the entities it divested faltered, and their owners shuttered plants, the Government has attempted to shore up operations. At one stage, it returned, on a short-term basis, to operate factories. It afterwards resorted to providing farmers with subsidies to transport their sugar cane to other mills, which Mr Shaw recently pledged to maintain.

The minister, of course, has raised a moral hazard for his administration. He couldn't reasonably not afford similar support to other players, even in other industries.

Part of the problem is how Jamaica's governments have approached sugar: as social welfare rather than enterprise. The concern has been what to do with 35,000 mostly low and unskilled workers, seasonally employed in the industry. In the circumstance, we repeat our position that on the basis of the income earned by most sugar workers, it is likely to substantially cheaper for the Government to provide them with direct financial transfers, over a number of years, similar to beneficiaries of its PATH welfare programame, rather than face the cost of a re-embrace of ownership and operation of sugar factories and farms.

If private interests, like Worthy Park and Wisynco, insist on being involved in sugar, so be it. They must be given the best opportunity to succeed, once it's not at taxpayers' expense. In which event the structure of the industry has to be addressed.

Moving to a genuinely liberalised industry, subject to market forces, inevitably brings questions about the relevance of a regulatory agency like the Sugar Industry Authority (SIA). The SIA is funded by a cess on manufacturers, based on the authority's budget, the amount of sugar cane projected to be milled, and the sugar to be produced. Manufacturers, understandably, complain that that places an undue financial burden on their already wobbly operations.

We are already on the route to liberalisation. Worthy Park/Wisynco joined three other entities in breaking the marketing monopoly of Jamaica Cane Product Sales (JPCS), whose continued existence must now be, at best, tenuous. We should go all the way.