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#BTColumn – The future of Sugar Cane in Barbados

by Barbados Today
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Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.

“I am not afraid of an army of lions led by a sheep; I am afraid of an army of sheep led by a lion.” – Alexander The Great

“A genuine leader is not a searcher for consensus (sic. Like many of our politicians), but a moulder of consensus.” – Martin Luther King

“If you do not know where you are going, any road will get you there.” – Lewis Carrol

“If you do not know where you are and, by extension, how you got there, most planning solutions for your predicament will be baseless.” – Anon

More than 45 years ago, one of our Caribbean political leaders declared that the sugar industry in the region was a “dead horse” and another expressed the wish to see the day when there was not a “cane blade” in Barbados. It is likely that they would have preferred “cash cows” that they could have milked to satisfy their huge appetite for taxpayer dollars, a great portion of which was wasted. The reality is that sugar cane in particular, and agriculture in general, remains critical to the agro-industrial output of Barbados and has the potential to be a modern prop for our 21st century economy.

The contribution of agriculture to an economy is often significantly undervalued since the agro-industrial activity related to agriculture is seldom recognised. An agro-industrial complex includes input manufacturing, distribution, marketing and supply together with the agricultural product storage handling, processing, transport, marketing and distribution. 

In such a complex, the agricultural or farm gate value itself is seldom more than 20 per cent of the total market value. The value added is four times that of the agriculture itself, but without the agriculture there can be no value added. Research has shown that a dollar spent in agriculture is recycled on average six times in an economy, which is more than that in any other sector. This is why developed countries have no problem supporting and subsidising their agriculture. We, on the other hand, think that we cannot afford agricultural subsidies. The reality is that we cannot afford not to support our agriculture but do not seem to understand why.

The past

Prior to 1971, the sugar industry in Barbados was recognised worldwide for its efficiency and had to have been well-managed by the private sector, supported by the skills and ingenuity of many Barbadians from all walks of life, in order to achieve what it did. See how the Barbados sugar production graph falls spectacularly after 1971? Only someone lacking in common sense could see this graph and not realise that something happened in 1971 to cause the decline of the industry which resulted in more than one million tons of reduced sugar production over the next 25 years, valued at close to $1 billion.

That something was the 1971 Sugar Industry Act which Landell Mills, a UK consulting firm contracted by the Barbados Government in 1978, deemed to have been “draconian” in their 1979 report. Up until 1971, the sugar industry in Barbados survived with little or no profit between “windfalls”. Normally, the sugar export market was over supplied and highly competitive, but sugar production shortfalls in other parts of the world would occasionally (eight years average) drive sugar prices up resulting in windfall profits that allowed producers to rehabilitate, renew and recapitalise their industry which would have failed financially without those windfall profits.

The Sugar Industry Act of 1971 gave the Government the power to:

1. Take away (tax) all the sugar industry’s windfall profits before the industry even got them. These taxes amounted to more than BD$50 million in the windfall years of 1974 and 1981 (which could have built more than three new sugar factories at a time when the minimum wage was $8 per day). $50 million does not sound like much now, but at current values, that tax amounts to the equivalent of more than $1 billion. The sugar industry could have remained profitable and competitive, but for that windfall tax;

2. Legislate wages in the industry. In the ensuing ten years, the Government legislated wage hikes of more than 120 per cent to levels that the industry could not support, especially after the Government had “huffed” all the industry’s windfall profits;

3. Guarantee full-time employment in an industry which had always been seasonal.

These actions were politically and socially desirable but they essentially took control of the industry from the private sector and ceded it to the Government while taxing the industry to bankruptcy in the process, depleting its capital as no sane private individual would invest in an industry labouring under these conditions. Furthermore, the Government was warned that it was killing the “goose that had laid the golden egg” (reference published articles in Barbadian Newspapers circa 1971). This is the industry that financed the Deep Water Harbour, the Queen Elizabeth Hospital, new Schools and roads across the island before 1971, mainly through the windfall profits which ended up in the economy of the country as a whole. The Government did not need to take the windfalls up-front as they always ended up in the economy anyway as more than 90 per cent of the industry was locally owned.

Compounding the situation is the question of economies of scale. The International Society of Sugar Cane Technologists noted in 2008 that the smallest financially viable sugar industry in the world was 12,000 hectares or 30,000 acres. The area under sugar cane in Barbados, which was more than 45,000 acres in 1971, is currently less than 10,000 acres and the available agricultural land for re-expansion of the sugar industry is almost non-existent. Furthermore, the price of sugar on the world market is less than the cost of production as much of it is still being subsidised.

The present

Following the decline of the Barbados Sugar Industry into bankruptcy, no subsequent Government wanted to bury the industry during its watch, because it was still employing thousands of Barbadian workers. 

That is the result of destroying something without a practical replacement. As a result, all subsequent governments have subsidised the sugar industry’s losses to the tune of more than a billion dollars over the last 30 years. However, the current debt burden of Barbados is such that the International Monetary Fund (IMF) has determined that there should be no further subsidies for most of the State-Owned Enterprises, including the sugar industry in Barbados. This has left the current Government with a difficult choice – allow the industry to die or find an alternative such as getting the private sector to take it over. The question is who would want to invest their hard-earned savings and capital in a bankrupt industry in Barbados with this history? A history compounded by the hate generated through its connections with slavery; the lack of capital; and labour unions that have been spoilt by politicians legislating wages well above what the industry can afford unless subsidised by taxpayers money.

There is little doubt that sugar production is no longer financially feasible in Barbados, other than with a subsidy and even then there is a question as to “why have we continued producing sugar to sell at less than the cost of production” as it makes no sense – common or otherwise!

The future

I recall a leading “planter” in Barbados saying 70 years ago that the Barbados sugar producers had made a mistake in allowing the Roebuck Street merchants to become Barbados’ major rum distillers, blenders and marketers. The sugar producers should have produced their own rum and developed their own brands and diversified their industry, thus affording them a better financial base, as was done in most other countries.

Rum consumption the world over has been increasing at a greater rate than any other alcoholic beverage. In 2016, when rum consumption had surpassed a billion pounds annually in the UK and exceeded both whiskey and gin sales, a survey was conducted of pub operators in the UK to determine why. They reported that the reason was because “the rum tasted better” (Financial Times of the UK).

Several years ago, a leading rum manufacturer in Barbados stated that they did not need Barbados molasses to produce Barbados rum. This was part of the reasoning to justify the sale of Barbados molasses at “free on board” or f.o.b. prices rather than the import price of molasses which included cost, insurance and freight or c.i.f. prices that result in the imported molasses being 30 per cent higher in price.

Successive Governments in Barbados have favoured the rum industry over the sugar industry because of the whopping excise tax it still collects from the rum producers. Such taxes can kill any of our export industries, including services, like they did to the sugar industry, because we have to compete in the global marketplace like everybody else, many of whom receive far greater assistance in their domiciles.

It has since taken foreign investors to highlight the value of “provenance” to Barbados rum, i.e. Barbados rum made from Barbados molasses. Furthermore, it does not have to be black strap molasses but can be fancy molasses from which no sugar has been crystalised. 

The primary goal of a strategic plan is to ensure that all stakeholders are on the same page and striving to reach the same goal. Barbados needs a strategic plan for its agricultural land use because there are several competing needs, including food crop production for food security; sugar cane, not for the dying sugar industry, but for the potentially great rum industry; housing for its population; and other industrial uses. Round and round we go like water in a sink hole vortex!

Peter Webster is a retired Portfolio Manager of the Caribbean Development Bank and a former Senior Agricultural Officer in the Ministry of Agriculture.

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