GOVERNMENT OF JAMAICA

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GOVERNMENT OF JAMAICAS SUGAR ADAPTATION
STRATEGY by George Callaghan

• SUGAR TRANSFORMATION UNIT,
• MINISTRY OF AGRICULTURE FISHERIES
• SUGAR CANE ENERGY FOR LIFE

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A Thought !

• Plan for what is difficult while it is easy, do
  what is great while it is still small.
• The Tao Te Ching

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The Sugar Industry Enquiry Commission

• A significant MILESTONE on the ROAD MAP to the
  development of a sustainable private sector-led
  sugar cane industry.
• Best wishes for a successful conclusion!

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CONTENTS This presentation

• The Context
• The Jamaica Country Strategy JCS
• Status of Implementation
• Next Actions
• Critical Success Factors
• Questions/comments

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The context Year 2006

• The contribution of the sugar sector
• The ownership structure
• Performance indicators
• Challenges
• GOJs response

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The context Year 2006

• The contribution of the sugar sector to Jamaicas
  economy
• Foreign exchange earnings US 75 M,
• - 6 of value of total exports 51.7 of
  agricultural exports in Y1998
• Employment
• Direct 38,000 persons in 32 political
  constituencies is 18 of total employment in
  Agriculture 4 of active labor force in
  Jamaica
• Indirect 100,000 persons, including 9,600
  independent cane farmers

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The context Year 2006

• The ownership structure of the sugar industry
• Let us take a look!

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The context Year 2006

• Ownership structure 2006

• Ownership structure 2010

• 5 Government (71 ) Frome, Monymusk, Bernard
  Lodge, Trelawny St. Thomas sugar estates
• 2 Private (29 )
• Worthy Park estate
• Appleton estate

• 4 Private sector (57 )
• Appleton, Worthy Park,
• Golden Grove Sugar,
• Everglades Farms.
• 3 Government (43 )
• Frome, Monymusk, BernardLodge

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The context Year 2006

• Some key sugar industry performance indicators
• Next slide!

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The context Year 2006 Worse before better!
Performance Indicators Y 2006/7 crop Y 2008/9 crop
Cane yield, tc/ha 64.48 51.4
Tonnes sugar/ha 5.42 4.8
Cane production, M tonnes 1.95 1.35
Area harvested, ha 30,308 26,296
Tonnes cane/t sugar 11.97 9.01
Factory capacity, t sugar 257,000 207,000
Sugar production, t 164,387 126,381
Factory capacity utilization, 64 61
Price, / t cane 20 26
Cost, / t cane 20 20
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The context Year 2006

• Challenges to the sugar sector
• Reducing unit cost of production US0.26 to
  below US0.17 per pound sugar
• Increasing cane yields from an average of about
  62 T/Ha to above 77 T/Ha NB.Average at Appleton
  Est. (2001 -2005) was 67 T/Ha 82 T/Ha at Worthy
  Park Est.
• Increased capital investment at public sector
  estates
• 36 cut sugar export prices to EU

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The context Year 2006 GOJs response!

• GOJs response to the challenges facing the sugar
  sector in Year 2005/6
• THE JAMAICA COUNTRY STRATEGY FOR THE ADAPTATION
  OF THE SUGAR INDUSTRY 2006 TO 2015 The JCS
  or GOJs Sugar Adaptation Strategy.

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The JCS / GOJs Sugar Adaptation Strategy

• The JCS Discussion points
• The JCS and its Phases
• Three (3) strategic objectives of the JCS
• History of the JCS
• Programme management The STU
• Funding arrangements
• Status of implementation in Year 2010
• Next actions

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The JCS / GOJs Sugar Adaptation Strategy

• The JCS Phases
• The Road Map to the development of a sustainable
  private sector-led sugar cane industry by Year
  2020
• Phase I 2006/7-2009/10
• Transition
• Phase II 2010/11-2014/15
• Transformation
• Phase III 2015/16-2019/20
• Consolidation

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The JCS / GOJs Sugar Adaptation Strategy

• Goal of the JCS To achieve an effective
  transition to a sustainable private sector-led
  sugar cane industry over the period 2006 -2020.

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The JCS / GOJs Sugar Adaptation Strategy

• Three (3) Strategic objectives
• 1. Development and maintenance of a sustainable
  private sector- led sugar cane industry -
  (Privatization)
• 2. Strengthen the economic diversification,
  social resilience environmental sustainability
  of Sugar-Dependent Areas (SDAs) - (Sugar
  Dependent Area Development)
• 3. Maintain progress towards GOJs
  macro-economic goals - (Debt reduction)

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The JCS / GOJs Sugar Adaptation Strategy

• History of the JCS
• JCS (I) - Approved by Cabinet in 2005
• Implementation period Y2006 to 2015
• JCS (I) - Revised in 2009
• JCS (II) - Implementation period Y2006 to 2020
• JCS (II) - Approved for implementation by Cabinet
  in Sept. 2009

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The JCS / GOJs Sugar Adaptation Strategy

• Programme management by the STU
• The Sugar Transformation Unit, Ministry of
  Agriculture Fisheries
• Staffing Total 31, of which 28 Field based.

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The JCS / GOJs Sugar Adaptation Strategy THE
STU
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The JCS / GOJs Sugar Adaptation Strategy

• Funding arrangements for the STU
• European Union Accompanying Measures for Sugar
  (AMSP) 97
• GOJ 3

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The JCS / GOJs Sugar Adaptation Strategy

• Status of implementation at the end of the
  Transition Phase Year 2010
• Milestone Completion of divestment of all GOJ
  sugar estates

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The JCS End of Transition Phase 2006 to 2010
Status report

• Actions Objective 1.

• Results

• Divestment
• Restructuring
• Public Awareness

• Two GOJ sugar estates
• Redundancy payments at J 2.3 B made by GOJ.
  Remaining three restructured taken off GOJ
  budget Investors being processed in new
  divestment round
• Public Awareness Campaign in progress

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The JCS End of Transition Phase 2006 to 2010
Status report

• Actions Objective 2

• Results

• SDA development
• Maintaining access of displaced sugar workers to
  basic health educational services
• Relocation of residents of the sugar estate
  Barracks
• Upgrading selected informal settlements on estate
  lands

• In place since redundancy exercise Dec. 08
• In progress Sub-Division plans for sites by
  Sept. 10
• Plan being prepared by SCJ Holdings

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The JCS End of Transition Phase 2006 to 2010
Status report

• Actions Objective 3

• Results

• Eliminate annual debt load of GOJ sugar estates
• Estimated J20.0 B in accumulated SCJ debt
  transferred to MOF PS

• Since 2008/9 crop GOJ sugar estates (Frome,
  Monymusk, Bernard Lodge) are self-financing
  (Eridania Tate Lyle Partial Pre-Shipment
  Financing Agreements)
• Debt-free sugar divestment

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The JCS End of Transition Phase 2006 to 2010
Status report

• Next action to complete the Transition Phase I of
  JCS implementation is
• Divest Frome, Monymusk Bernard Lodge before end
  of calendar year 2010

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The JCS Phases Summary

• Phase I 2006/7-2009/10
• Transition
• Phase II 2010/11-2014/15
• Transformation
• Phase III 2015/16-2019/20
• Consolidation

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The JCS - Phase II 2010 to 2015

• Phase II - TransformationYear 2010/11-2014/15
• Let us take a look !

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The JCS - Phase II 2010 to 2015

• A reminder to you Phase II (Transformation)
• Objective 1 (Development of a commercially
  viable sugar industry NOT DIVESTMENT!)
• Development and maintenance of a sustainable
  private sector- led sugar cane industry.

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The JCS - Phase II 2010 to 2015

• A reminder to you Phase II (Transformation)
• Objective 2 (SDA Development, not mitigation of
  the fall-out from restructuring of the sugar
  sector The Sugar Area Development Programme)
• Strengthen the economic diversification, social
  resilience environmental sustainability of
  Sugar-Dependent Areas (SDAs).

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The JCS - Phase II 2010 to 2015

• A reminder to you Phase II (Transformation)
• Objective 3 (Creation of an enabling policy
  environment. Not debt reduction)
• Maintain progress towards GOJs macro-economic
  goals.

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The JCS - Phase II 2010 to 2015 Transformation

• Objective 1
• Guidance to formulation of industry/sector
• plans
• to support the transformation of the sugarcane
  industry into a vibrant commercially viable
  sector, sustainable over the medium to long term
  both financially and environmentally....
  (profitability)
• efficiently using Jamaicas natural and developed
  advantages in sugarcane production ....
  (efficiency)
• capitalizing on the use of its physical and human
  resources to respond to growing market
  opportunities for downstream products derived
  from efficient production and processing of
  sugarcane to support industrial, employment,
  energy, and environmental goals. (product
  diversification)

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Phase II Objective 1 Commercial viability

• Some requirements for development of a
  commercially viable sugar sector
• Private sector investment in field and factory
  technologies and market development
• Enabling regulatory framework, acting on behalf
  of Government as arbiter between the interests of
  growers, input suppliers, field and factory
  workers, processors, traders, marketing and
  distribution agents, communities and the general
  public
• Improved access to product markets at home and
  abroad
• Industry run, market responsive, commercial
  management framework covering cane supply and
  pricing
• Elimination of supply, production and marketing
  constraints.

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Phase II Objective 1 Actions

• Completion of privatisation (FY2009/10)
• Access to new leasehold land for cane a)
  estates, b) cane farmers
• Review of regulatory framework, with primary and
  secondary legislative amendment to support
  streamlining and reform
• Support for review of pricing and marketing
  arrangements, introducing legislative or
  regulatory amendments as appropriate

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Phase II Objective 1 Actions continued.

• Oversight of collective bargaining between
  unions, growers, and estates
• Removal of regulatory constraints, or other
  difficulties in downstream product markets
  through regulatory revision (e.g. energy
  generation, sugar products, etc.) and negotiation
  of international trade agreements
• Support for investment to improve the viability
  of cane production and processing, and to realise
  macroeconomic, energy, and environmental
  objectives through fiscal and monetary incentives
  and mobilisation of donor support for
  concessionary financing (CEF), RD funding,
  training programmes etc. to stimulate activity in
  the medium term
• Improvements in public assets roads, irrigation
  etc.

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The Future to Year 2015 ! Targets

• Objective 1 Development of a commercially
  viable sector
• INDICATIVE PRODUCTION TARGETS
• Sugar cane 3.5 M tonnes
• Raw sugar 200,000 t. (Export domestic)
• Molasses 134,000 t. (Rum)
• Ethanol 70 M. Liters ( E-10 gasoline)
• Bagasse Cogeneration of electricity

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The future to Year 2015 Performance indicators?
Performance Indicators Y 2006/7 crop Y 2008/9 crop Y 2015 Forecast
Cane yield, tc/ha 64.48 51.4 80.0
Tonnes sugar/ha 5.42 4.8 8.0
Cane production, M tonnes 1.95 1.35 3.5
Area harvested, ha 30,308 26,296 43,750
Tonnes cane/t sugar 11.97 9.01 10.0
Factory capacity, t sugar 257,000 207,000 207,000
Sugar production, t 164,387 126,381 200,000
Other products from cane Est. 105,000 t molasses for rum, ethanol. Bagasse for cogeneration
Factory capacity utilization, 64 61 96
Price, / t cane 20 26 20
Cost, / t cane 20 20 15
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Phase II Objective 2 SDA development

• Objective 2
• Guidance in the formulation of Sugar Dependent
  Area/Community development plans
• to support the sustainable development of the
  sugar dependent areas at community, family, and
  individual level, countering increased urban
  migration by stimulating opportunities for
  employment and income generation, improving
  living conditions, raising the standards of
  social services provision, and conserving the
  environment for future generations.

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Phase II - Future to Year 2015 SDA development

• Objective 2 Expected results
• Economically viable and socially coherent rural
  communities
• Sustainable and expanding local economies with
  expanding opportunities for employment and
  income
• Reduced vulnerability of communities and
  households to the fortunes of the sugarcane
  market
• Younger generation motivated to remain in or
  return to the rural areas
• Improved opportunities for health care and
  quality education

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Phase II Objective 3

• Objective 3
• Guidance to the formulation of GOJ plans for
  sugar sector
• Positively contribute to Government revenues
  through corporate and personal taxes, duties and
  tariffs
• Reduce the burden of debt and debt servicing on
  the state budget
• Reduce vulnerability to external price
  variations, keeping inflation low and stable
• Support foreign exchange earnings, and help
  maintain foreign exchange rate stability
• Promote employment in rural areas, reducing
  dependency on the social safety net, slowing
  urban migration
• Promote increased energy efficiency and the
  generation of power from local renewable energy
  sources
• Support environmental objectives a) living
  conditions clean air, pollution, water quality
  and availability b) conservation - protection of
  the water table, reduced salinity, soil fertility
  and erosion c) heritage.

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JCS Some critical success factors

• Divestment of remaining three (3) GOJ sugar
  estates _ Frome, Monymusk Bernard Lodge as soon
  as possible (SCJH Aubyn Hill)
• Review decision on an institutional/regulatory
  structure, product marketing arrangements and a
  pricing policy for sugar cane as a raw material
  for a multi-product industry (Wint Commission)

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JCS Critical success factors

• Rapid thrust into value-added products to improve
  the industrys revenue streams and reduce risks
  (SMCJ/JCPS ??)
• Massive but sustainable improvements in cane
  production, productivity factory processing
  efficiencies (CANE EXPANSION FUND/AIJCFA/SMCJ/UNI
  ONS)
• Production of 3.5M tonnes of cane as soon as
  possible.

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THE END A thought !

• A journey of a thousand miles begins with just
  one step.
• GOD IS GREAT