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GOVERNMENT OF JAMAICA’S SUGAR ADAPTATION STRATEGY by George Callaghan

GOVERNMENT OF JAMAICA’S SUGAR ADAPTATION STRATEGY by George Callaghan

SUGAR TRANSFORMATION UNIT, MINISTRY OF AGRICULTURE & FISHERIES

SUGAR CANE : ENERGY FOR LIFE

A Thought !A Thought !

“Plan for what is difficult while it is easy, do what is great while it is still small.”

‘The Tao Te Ching’

The Sugar Industry Enquiry CommissionThe Sugar Industry Enquiry Commission

• A significant MILESTONE on the ROAD MAP to the development of a sustainable private sector-led sugar cane industry.

• Best wishes for a successful conclusion!

CONTENTS: This presentationCONTENTS: This presentation

• The Context

• The Jamaica Country Strategy – JCS

• Status of Implementation

• Next Actions

• Critical Success Factors

• Questions/comments

The context : Year 2006The context : Year 2006

• The contribution of the sugar sector

• The ownership structure

• Performance indicators

• Challenges

• GOJ’s response


• The contribution of the sugar sector to Jamaica’s economy:

• Foreign exchange earnings: US $75 M, - 6% of value of total exports & 51.7% of agricultural exports in Y1998

• Employment:– Direct: 38,000 persons in 32 political constituencies; is 18% of

total employment in Agriculture & 4% of active labor force in Jamaica

– Indirect:100,000 persons, including 9,600 independent cane farmers


• The ownership structure of the sugar industry:

• Let us take a look!


Ownership structure: 2006

• 5 – Government (71 %): Frome, Monymusk, Bernard Lodge, Trelawny & St. Thomas sugar estates

• 2 – Private (29 %):

• Worthy Park estate• Appleton estate

Ownership structure: 2010

• 4 –Private sector (57 %):

Appleton, Worthy Park,

Golden Grove Sugar,

Everglades Farms.

• 3 – Government (43 %):

Frome, Monymusk, BernardLodge


• Some key sugar industry performance indicators:

• Next slide!

The context : Year 2006 Worse before better!The context : Year 2006 Worse before better!

Performance Indicators Y 2006/7 crop Y 2008/9 crop

Cane yield, tc/ha 64.48 51.4

Tonnes sugar/ha 5.42 4.8

Cane production, M tonnes

1.95 1.35

Area harvested, ha 30,308 26,296

Tonnes cane/t sugar 11.97 9.01

Factory capacity, t sugar 257,000 207,000

Sugar production, t 164,387 126,381

Factory capacity utilization, %

64 % 61 %

Price, €/ t cane 20 26

Cost, €/ t cane 20 20


• Challenges to the sugar sector:

• Reducing unit cost of production: US$0.26 to below US$0.17 per pound sugar

• Increasing cane yields from an average of about 62 T/Ha to above 77 T/Ha NB.Average at Appleton Est. (2001 -2005) was 67 T/Ha & 82 T/Ha at Worthy Park Est.

• Increased capital investment at public sector estates

• 36% cut sugar export prices to EU

The context : Year 2006 GOJ’s response!The context : Year 2006 GOJ’s response!

• GOJ’s response to the challenges facing the sugar sector in Year 2005/6:

• “THE JAMAICA COUNTRY STRATEGY FOR THE ADAPTATION OF THE SUGAR INDUSTRY: 2006 TO 2015 ” – The JCS or GOJ’s Sugar Adaptation Strategy.

The JCS / GOJ’s Sugar Adaptation StrategyThe JCS / GOJ’s Sugar Adaptation Strategy

• The JCS: Discussion points:

• The JCS and its Phases

• Three (3) strategic objectives of the JCS

• History of the JCS

• Programme management – The STU

• Funding arrangements

• Status of implementation in Year 2010

• Next actions


• The JCS & Phases:• The Road Map to the development of a

sustainable private sector-led sugar cane industry by Year 2020:

• Phase I: 2006/7-2009/10 Transition

• Phase II: 2010/11-2014/15 Transformation

• Phase III: 2015/16-2019/20 Consolidation


• Goal of the JCS: “To achieve an effective transition to a sustainable private sector-led sugar cane industry over the period 2006 -2020.”


• Three (3) Strategic objectives: 1. Development and maintenance of a sustainable private sector- led sugar cane industry - (Privatization)

2. Strengthen the economic diversification, social resilience & environmental sustainability of Sugar-Dependent Areas (SDAs) - (Sugar Dependent Area Development)

3. Maintain progress towards GOJ’s macro-economic goals - (Debt reduction)


• History of the JCS:

• JCS (I) - Approved by Cabinet in 2005;

• Implementation period: Y2006 to 2015;

• JCS (I) - Revised in 2009;

• JCS (II) - Implementation period: Y2006 to 2020;

• JCS (II) - Approved for implementation by Cabinet in Sept. 2009


• Programme management by the STU:

• The Sugar Transformation Unit, Ministry of Agriculture & Fisheries:

• Staffing: Total = 31, of which 28 Field based.

The JCS / GOJ’s Sugar Adaptation Strategy : THE STUThe JCS / GOJ’s Sugar Adaptation Strategy : THE STU

PS, MOA

STU, Head

Project ManagerTechnical Services

Project ManagerMM/BL Regional

SDA Office

Project ManagerFrome Regional

SDA Office

Sugar T. SteeringCommittee

Accountant Administrative Assistant


• Funding arrangements for the STU:

• European Union Accompanying Measures for Sugar (AMSP) – 97 %

• GOJ – 3 %


• Status of implementation at the end of the Transition Phase: Year 2010

• Milestone: Completion of divestment of all GOJ sugar estates

The JCS : End of Transition Phase – 2006 to 2010 : Status report


Actions: Objective 1.

• Divestment:

• Restructuring:

• Public Awareness

Results• Two GOJ sugar estates

• Redundancy payments at J$ 2.3 B made by GOJ. Remaining three restructured & taken off GOJ budget; Investors being processed in new divestment round

• Public Awareness Campaign in progress



Actions: Objective 2

• SDA development:• Maintaining access of

displaced sugar workers to basic health & educational services

• Relocation of residents of the sugar estate Barracks

• Upgrading selected informal settlements on estate lands

Results

• In place since redundancy exercise –Dec. 08

• In progress: Sub-Division plans for sites by Sept. 10

• Plan being prepared by SCJ Holdings



Actions: Objective 3

• Eliminate annual debt load of GOJ sugar estates

• Estimated J$20.0 B in accumulated SCJ debt transferred to MOF & PS

Results

• Since 2008/9 crop GOJ sugar estates (Frome, Monymusk, Bernard Lodge) are self-financing (Eridania & Tate & Lyle Partial Pre-Shipment Financing Agreements)

• Debt-free sugar divestment



• Next action to complete the Transition Phase I of JCS implementation is:

• Divest Frome, Monymusk & Bernard Lodge before end of calendar year 2010

The JCS – Phases: SummaryThe JCS – Phases: Summary

• Phase I: 2006/7-2009/10 Transition

• Phase II: 2010/11-2014/15 Transformation

• Phase III: 2015/16-2019/20 Consolidation

The JCS - Phase II: 2010 to 2015The JCS - Phase II: 2010 to 2015

• Phase II - TransformationYear: 2010/11-2014/15

• Let us take a look !


• A reminder to you: Phase II (Transformation)

• Objective 1: (Development of a commercially viable sugar industry – NOT DIVESTMENT!)

• ‘Development and maintenance of a sustainable private sector- led sugar cane industry.’



• Objective 2: (SDA Development, not mitigation of the fall-out from restructuring of the sugar sector – The Sugar Area Development Programme)

• ‘Strengthen the economic diversification, social resilience & environmental sustainability of Sugar-Dependent Areas (SDAs).’



• Objective 3: (Creation of an enabling policy environment. Not debt reduction)

• ‘Maintain progress towards GOJ’s macro-economic goals.’

The JCS - Phase II: 2010 to 2015 TransformationThe JCS - Phase II: 2010 to 2015 Transformation

• Objective 1:• Guidance to formulation of industry/sector

plans:• to support the transformation of the sugarcane industry into a

vibrant commercially viable sector, sustainable over the medium to long term both financially and environmentally.... (profitability)

• efficiently using Jamaica’s natural and developed advantages in sugarcane production .... (efficiency)

• capitalizing on the use of its physical and human resources to respond to growing market opportunities for downstream products derived from efficient production and processing of sugarcane to support industrial, employment, energy, and environmental goals. (product diversification)

Phase II – Objective 1: Commercial viabilityPhase II – Objective 1: Commercial viability

• Some requirements for development of a commercially viable sugar sector:

• Private sector investment in field and factory technologies and market development;

• Enabling regulatory framework, acting on behalf of Government as arbiter between the interests of growers, input suppliers, field and factory workers, processors, traders, marketing and distribution agents, communities and the general public;

• Improved access to product markets at home and abroad;• Industry run, market responsive, commercial management

framework covering cane supply and pricing;• Elimination of supply, production and marketing constraints.

Phase II – Objective 1: ActionsPhase II – Objective 1: Actions

• Completion of privatisation (FY2009/10);• Access to new leasehold land for cane – a)

estates, b) cane farmers;• Review of regulatory framework, with

primary and secondary legislative amendment to support streamlining and reform;

• Support for review of pricing and marketing arrangements, introducing legislative or regulatory amendments as appropriate;

Phase II – Objective 1: Actions continued.Phase II – Objective 1: Actions continued.

• Oversight of collective bargaining between unions, growers, and estates;

• Removal of regulatory constraints, or other difficulties in downstream product markets through regulatory revision (e.g. energy generation, sugar products, etc.) and negotiation of international trade agreements;

• Support for investment to improve the viability of cane production and processing, and to realise macroeconomic, energy, and environmental objectives through fiscal and monetary incentives and mobilisation of donor support for concessionary financing (CEF), R&D funding, training programmes etc. to stimulate activity in the medium term;

• Improvements in public assets: roads, irrigation etc.

The Future to Year 2015 ! TargetsThe Future to Year 2015 ! Targets

• Objective 1 : Development of a commercially viable sector

• INDICATIVE PRODUCTION TARGETS:

• Sugar cane: 3.5 M tonnes• Raw sugar: 200,000 t. (Export & domestic)• Molasses: 134,000 t. (Rum)• Ethanol: 70 M. Liters ( E-10 gasoline)• Bagasse: Cogeneration of electricity

The future to Year 2015 – Performance indicators?The future to Year 2015 – Performance indicators?Performance Indicators

Y 2006/7 crop Y 2008/9 crop Y 2015* Forecast

Cane yield, tc/ha 64.48 51.4 80.0

Tonnes sugar/ha 5.42 4.8 8.0

Cane production, M tonnes

1.95 1.35 3.5

Area harvested, ha 30,308 26,296 43,750

Tonnes cane/t sugar 11.97 9.01 10.0

Factory capacity, t sugar

257,000 207,000 207,000

Sugar production, t 164,387 126,381 200,000

Other products from cane

Est. 105,000 t molasses for rum, ethanol. Bagasse for cogeneration

Factory capacity utilization, %

64 % 61 % 96 %

Price, €/ t cane 20 26 20

Cost, €/ t cane 20 20 15

Phase II – Objective 2: SDA developmentPhase II – Objective 2: SDA development

• Objective 2:• Guidance in the formulation of Sugar

Dependent Area/Community development plans:

• to support the sustainable development of the sugar dependent areas at community, family, and individual level, countering increased urban migration by stimulating opportunities for employment and income generation, improving living conditions, raising the standards of social services provision, and conserving the environment for future generations.

Phase II - Future to Year 2015: SDA developmentPhase II - Future to Year 2015: SDA development

• Objective 2: Expected results:

• Economically viable and socially coherent rural communities;

• Sustainable and expanding local economies with expanding opportunities for employment and income;

• Reduced vulnerability of communities and households to the fortunes of the sugarcane market;

• Younger generation motivated to remain in or return to the rural areas;

• Improved opportunities for health care and quality education;

Phase II – Objective 3Phase II – Objective 3

• Objective 3:• Guidance to the formulation of GOJ plans for sugar sector:

• Positively contribute to Government revenue’s through corporate and personal taxes, duties and tariffs;

• Reduce the burden of debt and debt servicing on the state budget;• Reduce vulnerability to external price variations, keeping inflation low

and stable;• Support foreign exchange earnings, and help maintain foreign

exchange rate stability;• Promote employment in rural areas, reducing dependency on the

social safety net, slowing urban migration;• Promote increased energy efficiency and the generation of power from

local renewable energy sources;• Support environmental objectives: a) living conditions – clean air,

pollution, water quality and availability; b) conservation - protection of the water table, reduced salinity, soil fertility and erosion; c) heritage.

JCS : Some critical success factorsJCS : Some critical success factors

• Divestment of remaining three (3) GOJ sugar estates _ Frome, Monymusk & Bernard Lodge as soon as possible; (SCJH Aubyn Hill)

• Review & decision on an institutional/regulatory structure, product marketing arrangements and a pricing policy for sugar cane as a raw material for a multi-product industry; (Wint Commission)

JCS : Critical success factorsJCS : Critical success factors

• Rapid thrust into value-added products to improve the industry’s revenue streams and reduce risks; (SMCJ/JCPS ??)

• Massive but sustainable improvements in cane production, productivity & factory processing efficiencies; (CANE EXPANSION FUND/AIJCFA/SMCJ/UNIONS)

• Production of 3.5M tonnes of cane as soon as possible.

THE END: A thought !THE END: A thought !

• ‘A journey of a thousand miles begins with just one step.’

“GOD IS GREAT”

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