Dear Editor,
The recently announced JV with GuySuCo appears to be beneficial on the surface, but it also exposes the local sugar industry to substantial risks. GuySuCo is partnering with a lower cost partner who will benefit from the JV by gaining access to the preferential terms of the white sugar Caricom supply agreement that Guyana was able to secure alongside other Caricom producers. That being the tariff preferential terms that places an additional 40% on those producers outside of Caricom.
Once the JV partner has secured access it is only a matter of time before it starts to use its lower cost suppliers to support the new refinery to increase its margins in the white sugar market. Such a move will still meet the Guyana sourcing requirements. Even if the agreement outlines a minimum percentage of local sugar that must be used at the refinery and in the supply for the Caricom markets, the life of the JV is not guaranteed nor perpetual and will only last as long as profitability remains attractive. Belize has also provided the partner with access to the regional market making it urgent for GuySuCo to accelerate its cost improvement efforts to stay competitive.
Mismanagement of GuySuCo’s improvement plans may result in future downsizing of GuySuCo and increased sourcing from a lower cost supplier, especially if the taste profile of the white sugar from the new refinery is indistinguishable. A change that could negatively impact the village economies dependent on GuySuCo.
GuySuCo is currently undertaking a cost improvement programme that will spread its fixed costs via increased production and reduce its variable costs via mechanization. However, the turnaround has been slow, supply has been low, and profitability has been a challenge. If local supply falters it becomes easier to second source sugar from a lower cost supplier to meet the requirements for the planned refinery to keep efficiency up and market demand satisfied. An issue that should not be ignored, especially given the history of the local industry.
The current strategy of increased business to business (B to B) and business to consumer (B to C) targeting increases the opportunity to shift focus from a commodity market supplier role to that of a unique niche player with brand equity and a value-added prepackaged product supplier. Therefore safeguards within the JV must allow for the protection of competitive information that guarantees our unique flavor profile is maintained. Given these considerations CRG recommends that the Board of GuySuCo partner with the Government to secure:
a long term supply agreement with Caricom for “Grown in Guyana” sugar;
exclusive supply agreements with businesses such as Swiss chocolatier companies; direct prepackaged product supply with major retailers.
These are opportunities that will help place GuySuCo on solid footing for long term profitability and growth.