ON THE RIGHT: Uncertain future facing Barbados

LMC INTERNATIONAL,

Added 11 January 2017

ontheright-new

DUE TO ITS modest yields and small scale, Barbados cannot be a cost competitive producer of sugar to the world market, even at a higher level of capacity utilisation.

Successive governments have evaluated the potential of the multi-purpose cane mill envisaged under the Barbados’ Cane Industry Restructuring Project.

After many years of discussion, the project has been decreased in scope from a mill that produces sugar and ethanol and electricity to one that produces only sugar and electricity.

This would include specialty sugars, which earn a premium in certain markets. However, this niche market has also been targeted by many other producers in recent years and premiums have declined as a result.

Currently, only demolition work has been carried out on the proposed site for the new mill and, with the cost of the project estimated at US$250 million, it is uncertain whether it will receive Government backing to go ahead.

Like other producers in the region, Barbados faces a fundamentally high cost structure for producing sugar, meaning that it can only operate on a commercial basis with access to high-priced markets for sugar, ethanol and electricity.

While field and factory efficiency is currently lower than it could be (and has been in the past), the construction of a new multi-purpose mill will not make the industry compete on the world stage, because of the climate, terrain and high-wage labour all inflate costs.

In the past, the industry was kept afloat by preferential access to the European Union (EU) and United States (US) markets, which commanded large premiums over world prices, as well by Government subsidies. Over time, as premiums in the EU market, in particular, have eroded, the sector’s financial position has deteriorated and cane area has declined.

Under current conditions, the industry can only exist with Government support for both millers and growers. While expanding the area under cane would help reduce unit costs for milling, it is unlikely whether the country has potential to encourage a recovery in cane area without substantial budgetary support. The limited size of the local and Caribbean Community markets, a small US quota and erosion of the value of the EU preference all suggest that sugar alone will not provide adequate income for profitable cane farming.

Should Barbados wish to keep a cane industry, because of its broader environmental and cultural significance, the Government will have to consider how it could be supported. Construction of a multi-purpose mill would open up a new revenue stream – electricity – which could be set at a high price (effectively providing a transfer from local consumers to the cane sector).

However, unlocking this potential income stream would require a huge investment and would need far larger cane production to be viable. Government, must therefore decide whether the socio-economic benefits of retaining a cane sector outweigh the costs of maintaining the industry (with transfers from consumers and/or directly from the Government of Barbados budget), as access to preferential export markets will not provide sufficient support in the future; indeed this access has not been sufficient to prevent the contraction of the sector over the past two decades.

The above information was taken from a recent report on African Caribbean and Pacific state sugar producers. It was authored by international agribusiness consulting firm LMC International on behalf of the European Commission.

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