Concern about the future of the sugar industry

In an article entitled “110,000 tonnes hit sugar cane mark” in Nationnews on Saturday, July 27, 2024, Minister of Agriculture Indar Weir said, “This (2024) will be the last year that the Government will be providing support in terms of Government financing of the sugar industry . . . we will maintain certain things like the Climate Mitigation Subsidy . . . but over and above that the Government will be out of that space. The savings to the Government will be somewhere around $30 million, and then the private owners will carry that responsibility of harvesting, carrying the costs and ensuring that the industry is efficient enough to generate a profit.”

A number of issues emerge from Minister Weir’s revelation. First, when the costs of certain things like the Climate Mitigation Subsidy are considered, the Government provided in excess of a staggering $30 million in financing for the sugar industry during the first transitional year, that is, whilst under the first year of management by the two companies owned by the Barbados Sustainable Energy Cooperative Society Limited (CoopEnergy).

The information provided by Minister Weir will be considered an answer to the question asked publicly on numerous occasions by economist Anthony Wood regarding the level of committed financing to CoopEnergy by the Government, given that the sugar industry will continue to incur substantial losses in the future.

The magnitude of the sum helps to explain why the key financing question asked by Mr Wood remained unanswered for such a lengthy period.

In the interest of accountability and transparency, Minister Weir should state explicitly the things that the Government will maintain financial responsibility for and the level of financial commitment for them, chief among which is the Climate Mitigation Subsidy.

Minister Weir should also tell the public whether the more than $30 million provided by the Government is indicative of the gross loss or net loss of the sugar industry in 2024. That is, did the Government underwrite the full cost of running the sugar industry in 2024 and allow CoopEnergy to build up its cash reserves by retaining the proceeds from the sale of sugar and molasses?

This is the only feasible condition (though it might turn out to be unrealistic) that will allow the Government to walk away from providing $30 million to finance the sugar industry next year.

If the above condition was agreed to by the Government, it would be necessary for the existing shareholders of CoopEnergy (including the 1,102 former employees of the Barbados Agricultural Management Company Limited) and prospective shareholders to know the net loss of the sugar industry in 2024. That is, when the revenues from the sale of sugar and molasses are factored into the equation, did the industry lose 10, 15, or 20 million dollars?

Ascertaining the true loss figure for the industry will be crucial since CoopEnergy will have to develop a realistic business model that will facilitate a financial turnaround in the industry in the shortest possible time. This will be a herculean task given the insignificant acreage of land under sugar cane cultivation, the inefficient state of Portvale factory, the uncertain state of the national renewable energy policy, and the inability of the private cane farmers in the Barbados Sugar Industries Limited (BSIL) to conclude a forward contract with CoopEnergy (or the Government) which assures them of an appropriate level of financial support through the Climate Mitigation Subsidy and an adequate price for their canes delivered to the factory for at least the next five years. This contract is vital for the BSIL farmers, who account for almost seventy-five (75) per cent of the sugar cane lands, to commit their future to the industry over the medium to long term.

Another issue emerging from Minister Weir’s revelation relates to the likely behaviour of CoopEnergy’s shareholders and other financiers to the news that after 2024, the private owners (CoopEnergy) will have to carry the costs (minus the Climate Mitigation Subsidy) of the sugar industry and ensure that it is efficient enough to generate a profit.

A fundamental concern is whether the leadership of CoopEnergy will be able to convince existing and potential shareholders and financiers that the transformation model for the sugar industry is a wise investment given the prevailing factors impacting negatively on the industry and its very unprofitable state. In the circumstances, can CoopEnergy realistically obtain the almost $100 million required to retrofit Portvale factory over the next three years for its role in the targeted energy industry?

A tangential issue emerging from Minister Weir’s revelation relates to the agreement entered into between the Government and CoopEnergy for the use of the public assets (sugar plantation lands, Portvale factory, office buildings, harvesters, delivery trucks) in the new arrangement. In the interest of accountability, transparency and good governance, the Government should tell the public whether the state has retained ownership rights to any of the assets.

Anthony P Wood is an economist, former lecturer in economics, and banking and finance at the Cave Hill Campus of the University of the West Indies. He was also a cabinet minister in a previous Barbados Labour Party administration.