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

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Presentation on theme: "SUGAR MANUFACTURING CORPORATION OF JAMAICA PRESENTATION TO THE WINT COMMISSION OF ENQUIRY JUNE/JULY 2010 The Sugar Industry in Jamaica 1."— Presentation transcript:

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

2 The Jamaican Sugar Industry today Continuing decline (25%) in production in the past decade Prices no longer EU-subsidised Government 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 grants Only 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

3 The Stakeholders of the Sugar Industry Manufacturers Cane growers Employees, and their dependents Unions Contractors Consumers  Overseas buyers  Local buyers  Manufacturers (i.e., local industrial users)  Individual consumers Government 3

4 The importance of the Sugar Industry Direct Employment Indirect Employment Economic stability of much of rural Jamaica Foreign Exchange earnings and/or substitution Government revenues/(costs)  Taxation/Duties 4

5 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

6 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

7 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

8 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: Regulation Regulation Marketing Marketing Research and Development Research and Development The private sector manufacturers and growers are aware of their responsibilities. 8

9 The current structure of the Sugar Industry SIA24 staff $126M cost SIRI70 staff $204M cost CPC0 staff 0.5M cost JCPS13 staff $60M cost SMCJ/ 6 staff SPF23M cost TOTAL113 staff $414M cost Sugar Industry Authority Sugar Industry Research Institute Cane Prices Committee 9 Sugar Manufacturing Corporation of Jamaica Sugar Producers Federation Jamaica Cane Products Sales

10 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

11 The Sugar Industry’s overheads US$M/% of Gross Revenue 199120002009 Direct costs (JCPS) 7,876 8.0% 18,981 15.7% 42,396 35.8% Indirect costs (JCPS/SIA/SIRI/Core) 1,600 1.7% 6,040 5.0% 4,420 8.0% 11

12 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

13 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 Australia15%29% Brazil15%20% India0%46% Mexico10%24% U.S. (Florida)10%20% Jamaica16% 13

14 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

15 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

16 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 loans Revise existing White Sugar Import Regime to encourage and accommodate locally produced white and brown sugar. 16

17 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

18 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

19 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

20 The proposed structure of the Sugar Industry SIA4 staff $40M cost Marketing6 staff Committee $20M cost Cane Prices 0 staff Committee $0.5M cost R&D15 staff Committee $108M cost SMCJ/SPF 6 staff $20M cost TOTAL31 staff $188M cost 20 Sugar Industry Authority Marketing Committee Cane Prices Committee R&D Committee Sugar Manufacturing Corporation of Jamaica All-Island Cane Farmers Assoc. Executive operations Regulatory authority


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