Speech

Mr. Speaker It will be recalled that last July in response to questions posed to me on the implications of the recent decisions by the WTO and the European Commission on our sugar industry, I indicated that the would be advised by the end of this month on the way forward for the Jamaican Sugar Industry.
I intend in this Statement to outline the course which the Government propose to take.
The Government in its efforts to secure the best arrangements possible for a sustainable local industry for the future held a number of consultations, with various stakeholders within and outside Jamaica.
Among these were the Report by the Committee on the Economy and Production, chaired by former Member of Parliament, Mr Ronnie Thwaites. a meeting with stakeholders in the industry on a report prepared by a Committee chaired by the former Director General of the PIOJ, Mrs Marjorie Henriques; Meeting with stakeholders under the auspices of the PIOJ, which enabled them to examine alternative options. consultations with members of both Houses of the British Parliament, Members of the European Parliament, the Council of Ministers of Europe and the European Commissions responsible for Agriculture, Development and Trade. discussions with the British Prime Minister and Exchange of Letters with a number of other European Heads of Government. constant dialogue and discussions among ACP (including CARICOM) Sugar Producers.
Mr Speaker, it is necessary to recapitulate two developments (to which I have made reference, separately in this House) which are pertinent to the policy about to be presented.
One concerns the significant and adverse changes in the pricing arrangements for sugar sold by African, Caribbean and Pacific (ACP) producers in the European Union.
The other concerns certain relevant developments in the international energy market.
Each will be considered in turn.
Proposed Changes in the Sugar Pricing Regime by the European Commission
In July 2003, Australia, Brazil and Thailand requested the establishment of a Dispute Settlement Panel in the context of the World Trade Organisation (WTO) to examine the legality of the subsidies applied to European Community (EC) sugar and which enable them to place on the world market some four million tonnes of sugar at subsidised prices. The principal complaint was that the EC had provided export subsidies in excess of WTO commitments in the Uruguay Round of negotiations to reduce export subsidies on sugar.
In October 2004, the WTO Panel considered the challenge and ruled in favour of the three countries. However, it emphasized the importance of the EU’s commitment to fulfilling Treaty obligations to the ACP under the terms of the ACP-EU Sugar Protocol.
In January 2005, the European Commission appealed the appeal of the Panel. In order to protect their interests, ACP states: (a) requested the WTO to have a third party participate in the arbitration proceedings; (b) retained legal counsel to represent them.
In April 2005, the Appellate Body set up to adjudicate on the appeal dismissed it, expressing agreement with the complainants that the EC sugar subsidies were in violation of its WTO commitments on export sugar. The Appellate Body’s Report was published on May 19, 2005. It required, among other things, that the EC bring its subsidies into conformity with its WTO commitments within fifteen months from the date of its Report.
The Panel emphasised the importance of the EU’s commitment to fulfilling its Treaty obligations to the ACP under the terms of the ACP/EU Sugar Protocol.
It is worth repeating that the WTO in its ruling did not specify that the EC had an obligation to reduce prices to ACP Sugar Producers. The EC’s decided to use the price mechanism, partly because of considerations relating to the Common Agricultural Policy.
The E.C. has set the deadline for the implementation of its Common Agricultural Policy (CAP) Reform for July 31, 2006 which is within the 15 month period required by the WTO.As variously publicised, the European Commission has recommended reductions in price as indicated by the following steps.
Year Price (Euros per tonne) Cumulative % age reduction 2005/06 523.70 – 2006/07 496.80 5.7 2007/08 394.90 24.0 2008/09 372.90 28.0 2009/10 319.50 39.0
The European Commission has proceeded to provide an elaborate compensation package for producers in the European Community and certain overseas territories known as DOMs.
Jamaica, in consort with other ACP states, is insistent that there are rights and obligations under the Treaty establishing the Sugar Protocol, and that any changes must be subject to meaningful negotiations rather than unilateral repudiation or variation without adequate notice and compensation.
The ACP is demanding A modification of the price reduction schedule, previously outlined, by lengthening the period over which it would apply and reducing the ultimate percentage reduction. The ACP has proposed a period of eight years and a maximum reduction of between 20% – 25% securing from the European Union meaningful compensation for the losses which will be incurred as a result of the new price regime to enable Jamaica and other ACP signatories to meet the inevitable costs which will arise from the proposed adjustments.These include redundancy, retraining, investments to make the remaining sugar cane fields and factories more efficient and diversification activities within the sugar industry and outside of it.
Mr Speaker, The suggested sum of 40 million Euros for all 18 ACP States, in the first year, is totally inadequate.
I had indicated in my letter to the European Union Heads of Government that Jamaica alone would require about 160 million Euros to undertake the readjustment, modernisation and diversification, which would be required over the period for the transformation of the industry.
Relevant Developments in the Energy Sector
As is well known, the international energy market is experiencing its fourth major ‘shock’; and for all sorts of fundamental reasons the current one is likely to be of a long duration.
The adverse impact is being felt all round in increased electricity rates, prices at the gasolene pump, on the foreign exchange market and on inflation.
As I indicated in my 2005/06 Budget Presentation, Jamaica has been finalising and in some instances implementing a number of policy prescriptions to deal with the problems posed by this crisis.
As has been done elsewhere, notably in Brazil , the sugar cane crop can be a part of the solution to the energy problem of the country. This has been given careful attention by the Government and one aspect, which we at this time deem feasible, will form a part of the policy.
Mr Speaker,
We are laying on the Table of this Honourable House today, Ministry Paper No.- which sets out as an Appendix the External Developments on sugar and conveys in full the Report of the PIOJ on Strategic Options and Recommendations for the Sustainable Future of the Jamaica Sugar Industry. This Report benefitted from the support and technical assistance of the sugar industry stakeholders for which we are grateful.
It provides a Strategic Analysis and Options, recommendations and an Action Plan as well as an Implementation Schedule. I commend this to Members and the Stakeholders for their detailed consideration so that we all are fully informed on the Policy Options we have so far accepted.
This will allow a Government team, lead by the Minister of Agriculture, to embark on a final series of consultations with the Stakeholders (Factories, Estates, Cane Farmers, Sugar Workers, technologists) as well as the Communities and Sectors which will be affected directly by the decisions we ultimately take in an Industry which affects every facet of our national life – economic, political, social and cultural.
Policy The industry will be centred around three products: raw sugar for the export and domestic markets; molasses for rum manufacture; and, in the first instance, ethanol as a substitute for the chemical MTBE in gasolene, for the local transportation sector. It is proposed to produce 200,000 tonnes of raw sugar per annum. This level of production would enable the country to meet its quota of 126,000 tonnes per annum in the EU market; 12,000 tonnes per annum in the US market and 62,000 tonnes per annum for the domestic market. The production will be done in three of the SCJ plants and the two now privately- owned.
This means that two of the current Government-owned plants, Long Pond and Bernard Lodge, will eventually be closed as far as sugar production is concerned. We do not , however, intend to close any factories immediately, but will be forced to do so in light of the phasing out period agreed and the introduction of suitable alternatives.
Mr Speaker,
The House may be aware of a draft report by EU consultants which indicated, among other things, that the Monymusk factory should be among those closed. The Government of Jamaica is not contemplating any such action, as it is of the view that the factory’s performance was not being judged on the basis of normal production levels which if realised would allow for a sustained and viable enterprise. It is proposed to produce as much molasses as is feasible to support the local rum industry. This has become even more critical because it is increasingly difficult to secure this product from overseas. A significant percentage of overseas production is being diverted to ethanol production because of the energy crisis. Some 70 million litres of ethanol will be produced for the local gasolene market as a substitute for MTBE. The ethanol which will be produced needs to be dehydrated. It is proposed to have this done in the Petrojam Ethanol facilities which have begun producing anhydrous ethanol, based on imported ‘wet’ ethanol, for the overseas markets.
The European Consultants’ draft report which I mentioned earlier, was less than sanguine about our capacity to produce ethanol from sugar cane economically. Our own internal studies, supported by Consultants we have engaged and taking into account projected prices for petroleum products, indicate that a locally-based ethanol industry is indeed viable.
The basis for all our plans going forward is dependent on an adequate supply of cane (approximately 3 million tonnes per annum) produced efficiently. The cane is going to come from the estates themselves and the cane farmers. I therefore must emphasize the important role the cane farmers will have to play. It is our intention to work very closely with them towards achieving the targeted volume and production levels.
As part of our plan, it is proposed to lease lands to the two private operators to enable them to expand their facilities to a combined production level of 75,000 tonnes per annum. It is expected that they will make the necessary investments to improve productivity.
It is proposed to identify business partners with the requisite experience in sugar cane growing, and sugar production, capital and technology , to enable the Sugar Company of Jamaica to achieve the targeted production levels of sugar, molasses and ethanol, on an efficient basis. To this end, a reputable Brazilian firm has already indicated serious interest and other enquiries have been received. It is our intention to follow up on these shortly.
It is proposed to develop alternative agricultural activities for the lands which will be taken out of sugar cane cultivation, to meet the needs of the domestic, tourism and export markets.
The Ministry of Agriculture has identified crops such as papaya under drip irrigation, ackee, orchard crops including soursop, mango, guava, coconut, citrus, limes, vegetables; and in the livestock area, goat and beef cattle production, as suitable alternatives.
It is proposed to return to a managed import regime of refined sugar to (a) prevent the diversion of refined sugar imported for manufacturing to the retail trade, with the consequent loss of revenue to the Government and very likely no benefit to the consumer despite the avoidance of duties; (b) protect the domestic market for locally-produced raw sugar against imports of dumped refined sugar.
It is proposed to undertake an examination of the way the industry is managed in respect of its capability to undertake research on a sugar cane industry , (rather than sugar as a single product) marketing and its regulatory functions, with the objective of achieving the most economic and efficient means of doing so.
The proposed rationalisation measures will have implications for human resource management. The necessary steps are underway to: (a) establish the needed training programmes for the transition to a modernised sugar-cane- based industry ; (b) restructure worker involvement and work relations in the industry; ( c ) undertake interventions at household and community levels in the vulnerable sugar producing areas.
The protection of the welfare of those directly and indirectly dependent on the sugar industry is of utmost importance. Our International Development Partners, the DFID and the EU, are assisting in the work to be undertaken on social and economic impact assessments and to develop intervention measures to mitigate the impacts within a framework to promote rural sustainable development.
On the international front, The Government of Jamaica is engaged with the EU in the development of a Jamaica Adaptation Strategy and Finance Agreement to be submitted to the EU. We are at an advanced stage of its development and intend to submit this to the EU ahead of schedule.
The challenges to reshape the industry for the new global environment are indeed immense, but, it is our view that with a ‘ fixity of purpose and continuity of effort’ in the areas we have mapped out, we shall overcome.