Agricultural diversification, the case of ethanol research

Winston Felix

Agricultural Diversification: the case for ethanol production in Guyana.

The Guyana Sugar Corporation (GuySuCo) had incurred debt of over G$82 billion by 2015. The current Government was approached by the state company for additional subsidies when it came to power the same year. The new Government acceded to GuySuCo’s demands. Due to the company’s ongoing financial crisis, the Government provided the required financial relief from the treasury. Within less than two years (from 2015), Government subsidies were estimated to be G$32 billion.

Recognizing that the situation is not sustainable, many observers have advocated alternative strategies such as diversification. In particular, the production of ethanol has been mentioned as an alternative to the production of sugar. One such observer is Tony Vieira. Vieira raised doubts about GuySuCo’s ability to diversify its own sugar industry. He posited that Guyana should investigate the possibility of producing ethanol. (Vieria, para.1) Although Vieira’s arguments may have several merits, it is prudent to make the following observations. A feasibility study was already conducted by the Economic Commission for Latin America and the Caribbean (ECLAC) in 2009. Consultants Eduardo Zabrockis and Manlio Coviello conducted the study. It was a comprehensive and detailed analysis of Guyana’s potential to produce ethanol. They raised several issues, ranging from environmental to the financing mechanisms for the project. The consultants essentially concluded that the project was not feasible. However, they did state that in order for the project to be feasible, it would have to be financed by the Government of Guyana. (Zabrockis and Coviello para. ) The Government would have to continue the practice of subsidizing the sugar industry.

However, it is unacceptable for Guyana to be engaged in the practice of subsidizing any of its industries, regardless of the pretext. Over the years, Guyana has simply engaged in the practice of rationalizing and legitimizing subsidies. Protecting the inefficient sugar industry in Guyana is inconsistent with its international obligations. Guyana has already received several waivers to put its house in order.

The last waiver came in the form of the African, Caribbean and Pacific Group of States and European Union (ACP-EU) Partnership Agreement which was promulgated seventeen years ago and culminates in 2020. Guyana is a signatory to the Agreement. Although it took Guyana several years to ratify it, Guyana still received the requisite benefits. The Agreement was specifically crafted to benefit countries such as Guyana which already had a “history� of noncompliance.

The authors of the Agreement were cognizant of these issues and provided budgetary supports. We have in fact benefited from these forms of support.

Most countries have utilized the budgetary support mechanisms to diversify their economy, and eliminate the dependence on sugar. As a result, there was a smooth transition. In the case of many Caribbean countries, tourism was developed. There was a seamless integration to the international reality of globalization and increased competition.

Somehow, Guyana failed to do that, in defiance of its international obligations.

In 2010, ACP-EU Agreement was once again modified to meet the new challenges faced by small and vulnerable countries, particularly those that face civil wars or natural disasters. The modification can be viewed as another waiver for Guyana because of its inability to comply with World Trade Organization (WTO) rules which are clear: the industry needs to be competitive.

When the ECLAC feasibility study was conducted for ethanol, the conditions were more favorable. The price support mechanisms were in place when the feasibility studies were conducted several years ago. However, today it is not a viable alternative to the production of sugar, because of the changing realities of the global market. The price of ethanol is currently falling. The price in 2014 was US$4.00 per gallon compared to today’s price of US$1.49 per gallon.

These prices will continue to fall in light of the deregulations of the US ethanol market.

The regulations were designed to support ethanol by providing incentives for manufacturers. All of this will change in the near future. The US President Donald Trump is supporting fossil fuel, as opposed to alternative forms of fuel such as ethanol and biodiesel. Guyana is also pursuing the same path. We are focused on exploiting our abundant fossil fuels. As a result, it is contradictory to attract Foreign Direct Investment for ethanol. The right thing for us to do is to be consistent. We can be consistent by reconciling our domestic policies

with our legal obligations. Eliminating subsidies to the inefficient sugar industry constitutes a step in the right direction.

Finally, it is myopic for anyone to think that countries such as Brazil or Cuba will ignore Guyana’s chronic problem of subsidizing the inefficient sugar industry. All they need to do is to bring a case against Guyana at the level of the WTO. Such a step can have devastating consequences for Guyana. We should have diversified into ethanol a long time ago when the conditions were more favorable.

Works Cited .Vieira, Tony. “GuySuCo should be investigating ethanol production.”

Stabroek News, June 27, 2017. https://www.stabroeknews.com/2017/opinion/letters/06/27/guysucoinvestigating-ethanol-production/ Holder, Noel. The Future of the Sugar Industry, State Paper on the Future of the Sugar Industry presented to the National Assembly by The Hon. Noel L. Holder, MP, Minister of Agriculture, May 8, 2017. http://agriculture.gov.gy/2017/05/08/state-paper-on-the-

future-of-the-sugar-industry/