With the devastation caused by the froghopper beetle in 2006/2007 and Hurricane Dean in 2007, the sugar industry has reportedly faced its worst two years in Belize’s history. Stakeholders in the industry are now challenged to find a way to turn things around, as a 36% price cut for Belize’s sugar is being implemented on the European market. The devastating floods caused by tropical depression #16 could not have come at a worse time, as the industry tries to pull itself out of the financial quagmire that has seen it forego BZ$27 million in revenues for the 2007 crop season alone. The Belize Sugar Industries is now in need of BZ$16 million more in financing to cover operations for the new crop year.
Sugar has always been a major export product for Belize, and in 2006, sugar was the nation’s #1 export, earning an impressive $100 million (as recorded by the Statistical Institute of Belize), making that industry even more important then than petroleum. Of note is that sugar earnings up to August 2008 lag almost $25 million behind earnings for the same period last year.
The critical state of the industry was outlined in a bulletin last Tuesday, October 21, by Joey Montalvo, managing director of Belize Sugar Industries (BSI). Montalvo notes that the crux of the problem is that farmers have not effectively adjusted to the losses caused by the beetle infestation and the hurricane, as “operating responses” continue to be “poor” on the part of the Belize Cane Farmers Association (BCFA).
Carlos Magaña, Chief Executive Officer, of BCFA (Corozal), says, however, that this is misrepresentation of the facts, and that BSI and the association have sat down and discussed the problems, and have come to the conclusion that both farmers and the factory, which had more down-time than usual, are responsible for the record poor production of the past two years.
One big issue is cane quality. Industry experts keep track of how many tons of sugar cane it takes to make one ton of sugar (tons cane per tons sugar – TC/TS). Montalvo reports that between 1997 and 2006, TC/TS averaged 9.82, but in 2007 and 2008, it took significantly more cane to make a ton of sugar, signifying that the quality of the cane was not as good. The figure quoted for 2007 was 12.36, and it got worse in 2008, registering at 12.53.
As a consequence of declining industry earnings, BSI reports a loss of $4 million for the 2008 financial year.
“The poor crop results in 2007 and 2008 have also had a direct adverse impact on our cash flow position,” says the managing director.
BSI indicates that the industry losses have not just put the company in a cash crunch, but it has also made it more difficult than ever to get financing – already a tough task given the state of global financial markets.
BSI has been negotiating with bankers for further financing, but those funds won’t come easy. Bankers have reportedly attached three conditions on BSI: The first is that a quality-based cane payment system is implemented, so that farmers are paid based on the quality of their cane. The second condition is that improvements are made in the efficiency of the harvest and delivery of cane. The third is that BSI increases its own sugar cane production.
BSI reports that if production had been increased by only 10,000 tons, farmers would have been paid $59 a ton rather than the $52 they received as second payment, because they missed out on opportunities to deliver additional sugar to the EU at favorable prices, and had to forego delivery against the 2008 USA quota.
Montalvo says that BSI, which also grows sugarcane, should be in position to start the crop by the end of November.
Of note is that sugar production at Tower Hill registered at 97,161 tons for 2007, and declined to 78,235 for 2008 – a plunge of almost 20%. Belize produced 111,000 tons of cane for the 2006 season. Production has declined 30% in two years.
The successive years of low production have put BSI in a tight spot, as the company reports that poor production “triggered an event of default, as we failed to satisfy a covenant to our bankers that sugar production would not fall below 105,000 tons in any two consecutive years.”
The challenges for the industry will no doubt continue in the aftermath of the recent floods. Ismael Carillo, chairman of the Orange Walk branch of the Belize Cane Farmers Association, tells Amandala that production was looking good for the new cane season, because farmers had been working hard in taking care of their fields, but with the ongoing rains and flooding, farmers will very likely suffer some losses in the field. He said that the association would be teaming up with the Sugar Industry Control Board this week to determine the extent of the flood’s impact on the sugar industry.
Magaña said that the association is aware of the three conditions set by the bankers on the BSI, and they have told the bankers that they will make their best effort to work with the factory, in delivering better quality sugarcane. However, they now face the grim reality of huge losses for the industry due to tropical depression #16.