Pan Caribbean Sugar Company sets out its vision
07 May 2012
In 2010, the Sugar Industry Enquiry Commission in Jamaica submitted its recommendations for the future of the Jamaican sugar industry. The report ‘questioned whether the marketing of sugar by private producers would need the same structure as when the industry was largely state-owned. However, no recommendation was given as to how it should be reshaped.’ To date, no formal decision has been taken on the future marketing arrangements for Jamaican sugar. However, according to press reports, the Chinese-owned Pan Caribbean Sugar company (PCSC – the subsidiary set up by the Chinese Complant group) has now withdrawn from ‘the pooling arrangement for a three-year supply deal between British sugar refiner Tate and Lyle and Jamaica Cane Product Sales (JCPS)’.
According to Ambassador Derrick Heaven, Executive Chairman of the Sugar industry Authority, this has created ‘a difficult situation’ in terms of delivery of the 150,000 tonnes under contract. As a result, JCPS can now guarantee to deliver only 50,000 tonnes. This followed Tate & Lyle’s efforts in January 2011 to ensure ‘supplies of 200,000 tonnes annually for five years’.
According to Francis He, CEO of PCSC, the company has spent some US$20 million so far on new equipment, designed to reduce production costs by at least 15% once the old equipment is phased out. PCSC aims to process 700,000 tonnes of cane within 3 years, involving smallholder farmers, who would be provided with ‘cheaper fertiliser and herbicide’, while the company would ‘provide a lower rate for harvesting, reaping and transportation’. Overall, the aim is to reduce production costs on the agricultural side by 30%.
PCSC is continuing with plans for a refinery at Monymusk, including a co-generation facility, which would make the company independent of electricity supplied by Jamaica Public Service. This is expected to provide a further area of cost savings.
PCSC is firmly committed to marketing its own sugar, seeing the JCPS operation as very expensive. PCSC is, however, willing to assist other estates with the marketing of their sugar, maintaining that ‘if Worthy Park, Appleton, Long Pond and St Thomas want to pool sugar into us, we will do it through commercial terms’.
Press reports indicate that, along with Complant’s six factories in Africa, the long-term aim is to supply the Chinese market with sugar.
PCSC would welcome more competition amongst local sugar processors for cane, with the best cane getting the best payments. This looks likely to further complicate one of the major unresolved issues from the Sugar industry Enquiry Commission, namely the cane payment system to be used, ‘remuneration to cane growers for the bagasse used in electricity generation and the issue of quality base payment for harvesting’.
Meanwhile, according to the Bank of Jamaica, sugar production in the first two months of 2012 was up by 29%. If this performance continues throughout the season, production of 180,000 tonnes could be achieved, the highest level of production since 2004.
Editorial comment
Because of delays in operationalising the recommendations of the 2010 Sugar Industry Enquiry Commission, many issues are still unresolved – including the basis of payments to farmers for sugar cane, the charges to be levied on inputs supplied and the marketing arrangements for Jamaican sugar.
Given the clear intention of PCSC to no longer pool their sugar, the offer from CEO Francis He to act as marketing agent for other sugar estates beyond PCSC, and the potential for a major reorientation of the direction of Jamaican sugar trade, there would appear to be a need for the establishment of a clear framework for the future functioning of the sugar supply chain in Jamaica.
This could draw from the experience of the EU in the dairy sector, where concerns over the impact of inequalities in power relationships along supply chains have given rise to calls for the establishment of a policy framework to strengthen the functioning of supply chains. In some EU member states, the new policy is being used to establish framework contracts for relations between milk producers and dairies. These framework contracts stipulate the types of areas to be covered within any supply contracts, and even the basis for price determination.
In the sugar sector, framework contracts could address issues such as:
- the basis for cane payments (e.g. according to level of sugar content);
- delivery schedules;
- inputs supply obligations and charges;
- deductions;
- even, perhaps, transportation risk sharing.
The new policy framework could even extend to the framework for relations between sugar sector companies which enter into common pooling arrangements for the marketing of their sugar.
