Jagdeo and Ali’s Sugar Industry Dilemma: Rising Costs, Declining Competitiveness, and Unresolved Subventions

In a recent Stabroek News’ article, President Irfaan Ali warned that if Guyana Sugar Corporation (GuySuCo) fails to meet its production targets in 2025, heads will roll. However, as Professor Dr. C. Kenrick Hunte, a former Ambassador, Head of GAIBANK, and economics expert, points out, focusing solely on crop targets as a measure of success in GuySuCo is a misleading approach that fails to address the core issue: the industry’s financial viability.

Dr. Hunte, writing in response to President Ali’s remarks, underscores that what truly matters for GuySuCo is not just meeting production quotas but achieving a competitive cost of sugar production that aligns with world market prices. This is essential not only for the financial survival of the corporation but also for reducing or eliminating the ongoing government subventions that have propped up the loss-making industry for years.

The challenges facing GuySuCo are multifaceted, and one of the most significant hurdles has been the loss of preferential European Union (EU) sugar prices, which provided a subsidy that kept GuySuCo’s operations afloat. The EU’s higher-than-market price for sugar created an illusion of profitability, masking the true inefficiencies in the sector. When Guyana’s sugar was sold under this arrangement, the company did not face the competitive pressures of the global sugar market. As Dr. Hunte notes, had the sugar been sold at world market prices, GuySuCo’s losses would have been much more pronounced.

From 2020 to 2022, GuySuCo’s financial troubles deepened, with losses increasing from $6.4 billion in 2020 to $10.3 billion in 2022. In 2022, the corporation was losing $218,134 per ton of sugar sold. This points to an unsustainable business model that, despite years of government intervention, has failed to deliver a profitable or self-sustaining industry.

As of 2024, GuySuCo’s average production cost per pound of sugar stands at US$1.31. In stark contrast, the world market price for sugar is only US$0.17 per pound. This discrepancy means that GuySuCo is losing US$1.14 on every pound of sugar it produces. In an effort to cover these losses, the Guyanese government allocated G$15.0 billion in 2023, but this was insufficient to address the full deficit, which amounted to G$4.7 billion. Projections for 2024 are similarly grim, with production expected to decline further.

The situation presents a dire challenge for GuySuCo’s future. To become internationally competitive, the corporation would need to drastically reduce its production costs. According to Dr. Hunte, GuySuCo’s productivity index would need to improve by more than 10 times to bring its cost per pound down to US$0.13, which aligns with the global market price. This is no small feat and would require a complete overhaul of GuySuCo’s operations, significant productivity gains, and possibly continued subventions for several production cycles.

The dilemma of GuySuCo is compounded by the rising cost of living in Guyana, which has already placed a strain on consumers. Sugar produced domestically is now more expensive than imported sugar, making it a less attractive option for consumers, who may begin turning to imports as a more affordable choice. As Dr. Hunte questions, given the high cost of locally produced sugar, is there an incentive for sugar to be smuggled into Guyana? With rising prices and a more competitive global market, the answer to that question may indeed lie in the shadow of illicit trade.

Ultimately, the failure to address the fundamental issues facing GuySuCo—high production costs, declining output, and financial unsustainability—will continue to burden taxpayers and consumers.

While President Ali’s promise of accountability through “heads rolling” may sound tough, unless GuySuCo undergoes a comprehensive transformation, it will remain a financial drain on the government and a source of economic inefficiency for the country. Given the realities should the government fail to take the needed steps to right size the industry to make it sustainable it remains on the edge of collapse despite continued subventions.

The A Partnership for National Unity and Alliance for Change (APNU+AFC) had embarked on rightsizing the industry to make it more effective but encountered criticism on the implementation of the policy and attack from the People’s Progressive Party (PPP). The PPP accused the coalition government of going after the industry because a significant amount of sugar workers are supporters of the PPP.