Your figures just do not add up, Mr interim Sugar Minister
The Fiji Times on Saturday, May 10, in a front page article reported a $1-billion deal between the Fiji Sugar Corporation and Tate & Lyle under the Economic Partnership Agreement (EPA).
The EPA, which comes into effect from October 2009, will replace the Sugar Protocol forced by the EU’s domestic sugar regime reforms as a result of WTO rules.
The EU reforms really mean that ACP member countries, including Fiji, will no longer enjoy the traditional preferential arrangements guaranteeing sugar prices of approximately three times the world market price.
Under EPA, Fiji like other ACP member countries supplying raw sugar to the EU may, however, benefit from increased quota or market access.
The increased quota no doubt has been offered to ACP countries to cushion the effect of the declining price, which began in 2006.
Hence, Fiji is offered an increased raw sugar quota of 300,000 tonnes annually to supply to Tate & Lyle.
Tate and Lyle, which is a world renowned sugar refinery and has been our traditional buyer in the EU since 1975.
The agreement reached is a result of continued negotiations between the industry and Tate & Lyle.
Yes, the contract will come into effect from October 2009 and last till October 2015.
The question is will this benefit the Fiji sugarcane farmers and the country?
The value of supply contract
The value of expected benefits of the supply contract noted by the Minister for Sugar is misleading to say the least and, wrong in certain regards, particularly because of the expected reduction in the EU prices for our sugar.
We all know that the EU sugar price has begun to decline.
It is expected to decline by 36 per cent by October 1, 2009, and after that our sugar will be subject to expected world price.
Given these prices forecast, the value of the 300,000 tonnes supply contract will be about $1-bn, assuming the Fiji industry does produce the required 300,000 tonnes, and under the above projected prices.
When you look at this in more detail a very different story emerges.
Now let me give you the facts.
Recent Fiji sugar export tonnage and prices
Fiji exports around 172,500 tonnes a year to the EU, selling its raw sugar to Tate & Lyle, in London.
Fiji enjoys a small quota of 11,145 metric tonnes export to the USA at a price slightly lower than the EU, but much higher than the world market price.
Furthermore, Fiji has the opportunity to sell additional raw sugar to the EU under the “Special Preferential Sugar (SPS)/ Complementary Quantity (CQ)” sharing formula.
Fiji’s CQ quota in the 2006 was expected to be around 10,000 metric tonnes.
Fiji sugarcane and sugar production in recent years has declined, and continues to decline, as summarised in the table at top left.
In 2007, our sugarcane output was 2.5-m tonnes and a sugar output of 237,418 tonnes, which was about 72,000 tonnes less than previous year.
We all know Fiji had to import sugar to fulfill its market obligations.
The 2008 sugarcane output is projected to be still lower than 2007 cane output.
It is projected the sugarcane output will be about 2.3 million tonnes and a sugar output of 230,000 tonnes — a further decline of sugar output by about 7500 tonnes from the 2007 production.
The sugarcane production as well as sugar output is expected to continue to decrease further — unless the industry is turned around immediately.
Recent industry trend shows a decrease in the number of active sugarcane farmers.
An Australian funded farm survey results shows that farmers’ total cost of cane production, harvest and transport was about $44 per tonne.
With reduced EU prices, published research suggests around 50 per cent of farms will become non-viable, and the industry is expected to produce around 1m tonnes of sugarcane.
This will then mean, given our milling and processing efficiency, a sugar output of around 100,000 tonnes after 2009.
This will then mean that having an annual supply contract of 300,000 tonnes, Fiji will have to buy close to 200,000 tonnes of sugar from elsewhere to fulfill its contractual obligation.
How can sugarcane farmers and Fiji expect to benefit from the 300,000 tone supply quota under such a scenario is beyond my comprehension.
Minister misleading the farmers
The minister, according to the quotes reported in The Fiji Times, further states that Fiji will annually benefit $425m.
Where does he get this figure from?
A school kid will tell us that average annual value of $1b over a seven-year period is $152m. Not $425m a year.
If we accept that the minister’s figure of $425m is correct, then for an annual quota of 300,000 tonnes the total proceed over seven-year period will be about $3bn and not $1bn, as reported.
Secondly, if we accept that the $425m is to be received annually, then the projected price would be expected to be $1417/tonne.
This is once again totally wrong.
The expected price reported above for 2009 is $646/tonne which calculates to roughly $39 per tonne cane price for farmers at current production levels and $42 per tonne at 300,000 tonne production.
With the cost of production around $44 per tonne, cane farming is not viable at all.
These price figures are less than half to third of what Chaudhry seems to suggest.
Obviously, there are serious anomalies in the report and figures provided by the minister in his statement.
Whatever the motive may be in giving such inflated estimates, it is outright wrong.
Even if there is a mistake in the minister’s calculations (which has not been corrected todate), there is no way that Fiji can expect the proposed $1bn without making major reforms in the industry. This is highly unlikely.
If anything, the sugarcane farmers and the industry are expected to continue as the biggest victims of the actions of Mr Chaudhry.
As a member of the illegal Government, and perhaps, as some say, even an instigator of the 2006 coup and subsequent “coups” he carried out within the sugar industry, Mr Chaudhry’s actions has meant that the farmers have been sent to the gallows.
EU $350m grant
We all know that the EU’s sugar grant of $350m has been put on hold because of the coup and more so the failure by Mr Chaudhry to fulfill his commitments to the EU.
The EC had agreed, under the “Accompanying Measures” to provide $350m in financial help (grant) to the sugar industry.
This money we all know was meant to help the sugarcane farmers cope with declining prices. The EU money was meant to help farmers increase their yield; reduce production, harvest and transport costs and remain viable.
The EU grant was to help non-viable sugarcane farmers to engage in alternative forms of livelihoods.
It was meant to help sugar cane farmers to begin new life elsewhere when their leases were not renewed, and to help incoming new farmers in their sugarcane farming.
Now, with the continued illegal regime, and with the uncertainty about the interim regime meeting its commitment of a March 2009 elections, farmers will not get the benefits of the EU grant.
Among other things, as a result of the December 2006 coup, the EU grant being put on hold and the reforms on ways to reduce harvest and transport costs that was due to start in 2007 was stopped.
Despite repeated warnings by me (then the SCGC-CEO) that any action by the military commander to remove the democratically elected government would result in jeopardising the EU assistance, no heed was taken by the military commander-coup leader, the orchestrators and beneficiaries of the coup and even the Fiji Labour Party-National Farmers Union that claims to represent the welfare of the Indian community and cane farmers.
Both are on record to announce their support for the coup. The result has been the suspension of the $350m grant, thereby halting all reforms much needed to salvage the industry.
By their own actions, the Interim Minister of Sugar and Finance and the military commander have struck the last nail on the coffin.
Firstly, with the declining EU sugar prices and increasing production, harvest and transport costs, many farmers will lose their source of livelihood.
Secondly, the EU will not release the $350m in grant to help such farmers.
Thirdly, the country will lose, as the sugarcane production continues to decline and the country forced to import sugar to meet its export commitments.
Therefore, a 300,000 supply contract can end up costing the country more.
The country will have to spend money to import sugar to meet the gap in contractual obligation and the domestic production, money that the country does not have given the continued position of Mr Chaudhry and his illegal government and the continued decline in our economy.
A slow and painful death is now imminent and Mr Chaudhry and his illegal military government must take the full blame.
I have been vindicated.
– Jagannath Sami is the former CEO of the Sugar Cane Growers Council who was deposed by the military and was subsequently sacked by the President of the Republic of Fiji
Chaudary’s claims reminds me of that saying about being suspicious of someone being an idiot (eh Budhau) and then opening one’s mouth to confirm beyond doubt!!!