SUGAR MANUFACTURING CORPORATION OF JAMAICA PRESENTATION TO THE WINT COMMISSION OF ENQUIRY JUNE/JULY 2010 The Sugar Industry in Jamaica 1.

SUGAR MANUFACTURING CORPORATION OF JAMAICA

PRESENTATION TO THE WINT COMMISSION OF ENQUIRY

JUNE/JULY 2010

The Sugar Industry in Jamaica

1

The Jamaican Sugar Industry today

Continuing decline (25%) in production in the past decadePrices no longer EU-subsidisedGovernment unable to continue subsidising the State held

Estates and Farms Must divest holdings as agreed with EU to access budget support

funding through EU accompanying measures grantsOnly 6 sugar factories now operating; cane growing now

includes about 5,000 independent farmers delivering 505,910 tons in 2009 (around 38% of the total grown)

Sugar industry still the second largest employer with 38,000 direct employees* and 228,000 dependents

Industry’s bureaucracy structured for the realities of the past and requiring review to meet a private sector led future.

2

* 2005 Jamaica Country Strategy

The Stakeholders of the Sugar Industry

ManufacturersCane growersEmployees, and their dependentsUnionsContractorsConsumers

Overseas buyers Local buyers

Manufacturers (i.e., local industrial users) Individual consumers

Government

3

The importance of the Sugar Industry

Direct EmploymentIndirect EmploymentEconomic stability of much of rural JamaicaForeign Exchange earnings and/or

substitutionGovernment revenues/(costs)

Taxation/Duties

4

The requirements of the Sugar Industry

Government facilitation “Sensitive industry” status Importation of sugar – raw and refined Adequate national infrastructure Making land available for growing of more cane to optimize factory

capacity Equality of treatment of all industry players, both manufacturers and

growers. Other measures

Profitability / Cost Containment Price Stability Sustainability Efficiency Review of Accompanying Measures Review of taxation and duty regimes affecting Sugar Industry

5

Sugar production

Both cane growing and sugar manufacturing involve very high fixed costs.

The sugar industry in Jamaica needs to maximise efficiencies especially in view of its relatively small size; this involves modernization and capital expenditure to stimulate increased productivity.

The industry has no output GCT tax against which to offset GCT input tax; it therefore seeks relief from this and other duties on imported equipment for cane farming and milling, as well as other necessary inputs, reversing taxes imposed in 2004.

Relief from taxes and duties on fuel oil and lubricants consistent with relief given to other industries (bauxite, tourism)

6

Sugar Industry administration

Sugar produced owned by the factory.Current system of cane farmer registration to individual

factories should continue.The Regulations dealing with cane analysis should be

revised to take account of new technology.Current arrangements for pooling of sugar should

continue, provided that all 96° raw sugar, locally produced molasses and all imported sugar are marketed through the Marketing Committee.

Provision in Sugar Industry Control Act for payment of surpluses from sale of raw sugar into Consolidated Fund should be deleted in view of industry privatization.

7

The responsibilities of the industry’s associations

There are three essential functions that must be managed for the health and wealth of the industry overall:RegulationRegulationMarketingMarketingResearch and DevelopmentResearch and Development

The private sector manufacturers and growers are aware of their responsibilities.

8

The current structure of the Sugar IndustrySIA 24 staff

$126M cost

SIRI 70 staff$204M cost

CPC 0 staff0.5M cost

JCPS 13 staff$60M cost

SMCJ/ 6 staffSPF 23M cost

TOTALTOTAL 113 staff113 staff$414M $414M

costcost

9

Regulatory and Administrative overheads

SMCJ believes that the dual imperatives of greater efficiencies and reduced costs must be applied to the industry’s administration and regulation.

Indirect overheads should be reduced to approximately one third the present expenditure.

Direct overheads are not susceptible to such reductions but the possibility of any and all cost savings should to be addressed.

10

The Sugar Industry’s overheads

US$M/% of Gross Revenue

1991 2000 2009

Direct costs(JCPS)

7,8768.0%

18,98115.7%

42,39635.8%

Indirect costs(JCPS/SIA/SIRI/Core)

1,6001.7%

6,0405.0%

4,4208.0%

11

The Sugar Industry’s overheads (amended)

US$k/% of Gross Revenue

1991 2000 2009

Direct costs(JCPS)

7,8768.0%

18,98115.7%

15,08212.62%

Indirect costs(JCPS/SIA/SIRI/Core)

1,6001.7%

6,0405.0%

4,4208.0%

11

In the original.

•US$M should be US$k.

• Direct costs incorrectly included the cost of imported sugar amounting to US$k 27,314

Regulation

Where appropriate, there should be self regulation at the individual enterprise and association level.

However, the overall and formal regulation (establishment and preservation of equity) of the total industry should remain with government.

The regulatory body should include representatives of the industry’s producers; its functions should be legislative and judicial in nature; it should have NO executive function.

At this time, sugar manufacturers agree the already established Cane Price Formula should continue.

12

Cane Grower v. Miller incentive

Increase in GROWER revenue from 10% increase in sucrose content

Increase in MILLER revenue from 10% increase in sucrose content

Australia 15% 29%

Brazil 15% 20%

India 0% 46%

Mexico 10% 24%

U.S. (Florida) 10% 20%

Jamaica 16% 16%

13

Sugar Industry Authority

The Minister will appoint the Board of the Authority, in accordance with the Act, comprising seven members who by training or experience appear to him to be suitable for appointment, with ability in law, finance, economics and matters related to the sugar industry, as follows: Chairman (Independent) 2 SMCJ Manufacturer Representatives 1 Jamaica Estate Cane Growers’ Association

Representative 1 AIJCFA Representative 2 of Lawyer, accountant, economist

14

Marketing

The SIA should appoint a Sugar Marketing Committee with balanced representation from the Growers and Manufacturers, as well as Independents, as follows: Chairman (Independent) 2 SMCJ Manufacturer Representatives 1 Jamaica Estate Cane Growers’ Association

Representative 1 AIJCFA Representative 2 Independents

This committee should be responsible for the marketing, sale and distribution of the product to the buyers.

Costs of the Committee should be taken from sugar sale proceeds.

15

Local Marketing

Appropriate taxation and imported sugar duty regimes should be put in place to enable local market requirements to be satisfied and administered by the Jamaican sugar industry.

The Sugar Marketing Committee (as agent of the SIA) should be the sole importer of raw and refined sugar into Jamaica.

It should market ONLY sugar, not other commodities such as fertilizer or chemicals.

It should not make loansRevise existing White Sugar Import Regime to

encourage and accommodate locally produced white and brown sugar.

16

Cane Prices Committee

The SIA should appoint a Cane Prices Committee, funded by way of SIA cess and with Terms of Reference as set out in the Mills Commission, with balanced representation from the Growers and Manufacturers, as well as Independents (1 each) and a Chairperson, as follows: Chairman (Independent) 1 SMCJ Manufacturer Representatives 1 AIJCFA Representative 1 Independent

17

Research and Development Committee

The SIA should appoint an R&D Committee with balanced representation from the Growers and Manufacturers, as well as Independents (two each) and a Chairperson, as follows: Chairman (Independent) 2 SMCJ Manufacturer Representatives 1 Jamaica Estate Cane Growers’ Association Representative 1 AIJCFA Representative 2 Independents

Research costs should be shared between the producers, i.e. the growers of cane and the manufacturers of sugar and levied by way of SIA cess.

18

Research & Development Committee

Factory Division Continue

Core sampling

Discontinue All other services

Agricultural Division Continue

Variety development Plant pathology and

entomology Lab analysis for sugar

and molasses Leaf and soil sampling

Discontinue Extension services Economics Engineering All other services

19

The proposed structure of the Sugar IndustrySIA 4 staff

$40M cost

Marketing 6 staff Committee $20M cost

Cane Prices 0 staffCommittee $0.5M cost

R&D 15 staffCommittee $108M cost

SMCJ/SPF 6 staff

$20M cost

TOTALTOTAL 31 staff31 staff$188M cost$188M cost

20

Executive operations

Regulatory authority