""

Required Report - public distribution

**Date:** 4/21/2003

**GAIN Report Number:** JM3004

JM3004

**Jamaica & Dep**

**Sugar**

**Annual**

**2003**

**Approved by:**

![](media/image1.wmf)David G. Salmon

#### U. S. Embassy Dominican Republic

**Prepared by:**

Sylburn Thomas

**Report Highlights:**

Jamaica\'s sugar production is expected to decline to 170,000 metric
tons during the 2002/2003, its lowest in 56 years. As production of raw
sugar declines, Jamaica will import increasing quantities of raw sugar
to satisfy domestic demands, while fulfilling export quotas with local
production. Domestic consumption of refined sugar will grow at the same
modest rate as production of carbonated beverages increase.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Santo Domingo \[DR1\]

\[JM\]

**Table of Contents**

#### Executive Summary...................................................................................................3

**Statistical
Data..........................................................................................................4**

**Sugar Cane
Centrifugal.........................................................................................4**

**Sugar,
Centrifugal..................................................................................................4**

**Production................................................................................................................5**

**Consumption............................................................................................................7**

**Trade........................................................................................................................7**

**Stocks......................................................................................................................8**

**Policy.......................................................................................................................8**

**Executive Summary**

Jamaica's sugar production is expected to decline to 170,000 metric tons
during 2002/2003, its lowest in 56 years. The industry continues to be
plagued with high production costs, low productivity, high factory down
time and low yields, despite concerted government and private sector
efforts to restore profitability. The Government of Jamaica (GOJ), in an
effort to preserve the sugar industry will, for the second in less than
four years, commission a study to investigate the future of the Jamaica
sugar industry. The current industry development plan, which was aimed
at increasing productivity to 75,000 tons cane per hectare and 96-degree
sugar to 300,000 metric tons, has been widely accepted by sugar industry
interest as a failed and unrealistic effort.

As the production of raw continues to decline, Jamaica will import
increasing quantities of raw sugar to satisfy domestic demands, while
fulfilling export quotas with domestic production. The consumption of
refined sugar will continue to grow modestly, as production of
carbonated beverages increase.

###### Statistical Data

![](media/image2.wmf)

![](media/image3.wmf)

Production

Relatively to the minimum industry viability targets outlined in the
five-year sugar industry development plan (1999/2000 - 2003/2004), the
first 124 days of harvest for the 2002/2003 sugar crop has produced
dismal performance indicators, which clearly signal a failure of
government and private sector efforts to restore profitability to an
ailing sugar industry. As of April 10, the 2002/2003 sugar cane crop,
which was about midway in harvest, had produced only 101,367 metric tons
(MT) of 96-degree sugar from 1,137,020 MT of sugar cane at a tons cane
per ton sugar (TC/TS) ratio of 11.22:1. When compared to the
corresponding period of the 2001/2002 sugar crop, these indices reflect
an inappreciable change in 96 degree sugar production from a marginal 2
percent more sugar cane and a slight slip in the TC/TS ratio from
10.96:1 to 11.22:1. The lower cane quality for the 2002/2003 sugar cane
crop is expected to restrict production of 96 degree sugar to
approximately 170,000 MT, 2.3 percent below the disappointing 174,000 MT
produced during the 2001/2002 sugar cane crop and 16.7 percent below the
2000/2001 crop. Jamaica's production of 96-degree sugar is expected to
remain in the proximity of 190,000 MT for the near term. The lower cane
quality for the 2002/2003 crop is due principally to unfavorable weather
conditions during the planting season, which restricted the replanting
levels and hampered essential agronomic practices in the early stages of
the crop.

Despite extensive financial support by the Government of Jamaica (GOJ),
output from the sugar industry continues to decline. During the
2001/2002 sugar cane crop, 96-degree sugar and sugar cane production
plummeted by 14.59 and 11.89 percent to a 55-years low of 174,000 MT and
1,965470 MT, respectively. The decline in output is attributed primarily
to the influence of flood rains during the months of May and June, which
disrupted the harvesting cycle by more than two weeks and significantly
compromised sugar cane supply, factory operations, and crop quality.
Actual factory grinding time declined by an alarming 8.7 percentage
points from 62.19 percent in 2000/20001 to 53.51 percent during
2002/2002, while the TC/TS ratio, a reflection of crop quality, slipped
from 10.91 to 11.25. Of equal importance to output of the 2001/2002 and
2002/2003 sugar cane crops is the low level of replanting which has
affect yields and crop quality. During the 2001/2002 and 2000/2001 sugar
crops, replanting levels were 7.4 and 8.8 percent below the 16.9 percent
industry target. Within the Jamaica sugar industry, the difference in
yield between sugarcane fields at first ratoon (year 2) and old fields
(years 4 and over) is 20 MT per hectare on average. The low replanting
during the 2001/2002 and 2002/2003 sugar crops was due primarily to
delay in the replanting loan program and unfavorable weathering
conditions during mid-2002.

Since the development of a five-year industry plan in 1999, the
divergence between actual and projected output continues to widen over
successive crop years. During the 2000/2001 and 2001/2002 crops, sugar
production was 19.5 and 34.3 percent short of projection. The divergence
is expected to worsen during the 2002/2003 crop to approximately 41
percent short of the industry target. In light of the continued
depressed results, the GOJ has, for the second time in less than four
years, commissioned a report to investigate the status of the industry
and devise a strategic direction to restore profitability. Industry
experts remain pessimistic about the future of the Jamaican sugar
industry as a viable producer of raw and or refined sugar. Several
factors will continue to have a negative impact on sugar production,
i.e., limited loan and replanting programs, poor agronomic practices,
heavy debt burdens, poor infrastructure, high levels of illicit cane
fires and cattle damage.

With respect to the distribution of sugar cane production between
estates and farmers, estates accounted for 57.5 percent of total sugar
cane production during the 2001/2002 crop. Average industry productivity
declined from 56.83 to 52.28 tons cane per hectare, during the 2001/2002
crop, and is expected to remain low for the 2002/2003 crop. The
apparently unrealistic productivity target of 75 tons cane per hectare
is not expected to be achieved over the medium term.

Crop Area

The Area under sugar cane cultivation varies from year to year within a
narrow range of 40,000 to 46,000 hectares, of which 82 to 93 percent is
usually harvested. For the current crop, 39,000 hectares of land is
estimated to be under sugar cane cultivation. During the 2001/2002 crop,
37,591 hectares of land was planted with sugar cane, of which 34,226
hectares were harvested. Of the harvested acreage, farmers and estates
accounted for an estimated 18,174 and 16,052 hectares, respectively. The
marginal gain in acreage replanting from 9.27 to 7.9 is expected to be
eroded by a decline of 2.9 percentage points during the 2002/2003 crop.
Replanting costs, which vary between US\$1,313 and US\$2,013 per
hectare, and poor administration of the cane replanting loan program
will continue to frustrate the replanting effort.

The industry needs to replant with higher yielding varieties in order to
increase productivity and lower cost. The Sugar Industry Research
Institute continues to research and commercialize high yield cane
varieties. Current production costs of US\$650 per MT are well in excess
of the US\$471.20 per MT average annual revenue realized by the
industry.

Crop Quality

Sugar cane quality, as measured by the Jamaica Recoverable Cane Sugar
(JRCS) and the TC/TS ratio, shows significant decline during the
2001/2002 crop and is expected to further deteriorate during the
20002/2003 crop. The reduced quality of the 2001/2002 crop is attributed
to unfavorable weather conditions during the harvesting period and
extended factory downtime.

Production Policy

Faced with very high costs, low productivity and a generally inefficient
sugar industry, the GOJ and other sugar industry interests crafted a
major policy direction in 1999 to bring the ailing sugar industry to
globally competitive levels. The objectives of the policy addressed
investment priorities, operations efficiencies and established minimum
production and productivity coefficients. Now in the fourth year of
implementation, the master plan has failed to deliver any of its
intended objectives and has unanimously been accepted by sugar industry
officials as a failed effort. Against this background, the GOJ, in a
rather desperate effort to preserve the sugar industry on the premises
of social and historic importance, has commissioned a further study to
explore diversification option in the industry as a strategy to improve
profitability. The new policy, which will be tabled in parliament during
2003/2004, is expected to include feasibility studies of co-generation
and alcohol production as diversified output from the sugar industry.
Productivity parameters outlined in the previous plan is expected to be
retained.

Consumption

Since the 1990\'s, Jamaica's annual sugar consumption ranged between
118,000 MT and 137,000 MT. Over the last five years, sugar consumption
has been relatively stable at approximately 124,000 MT per year. While
total sugar consumption is expected to remain stable for another few
years, consumption of refined sugar, which is used mostly for
manufacturing purposes, is expected to grow proportionately with the
modest projected increase in carbonated beverages and sweet pastries
production. Carbonated beverage production, which utilizes most of the
approximately 60,000 MT of refined sugar imported each year, is expected
to increased by 2 to 3 percent per year over the next two years. The
proposed amendment to the GOJ's refined sugar importation policy (see
consumption policy) aimed at stemming the entry of duty free refined
sugar to the consumer market is expected to curtail the consumption of
refined sugar at the retail level to 5,000 MT per year. It is estimated
that the manufacturing sector has an annual demand of 45,000 to 50,000
MT of refined sugar. Due to high production costs and other structural
impediments, sugar-based products manufactured in Jamaica are likely to
be uncompetitive in the Free Trade Area of the Americas. Hence, refined
sugar imports could decline sharply after crop year 2005/2006. The
domestic demand of 75,000 MT of brown sugar is expected to remain
constant over next three years.

Jamaica continues to fulfill its various export quotas with domestic
production while satisfy domestic demand from imports. Despite only an
infinitesimal change in overall sale of raw sugar on the domestic market
during 20001/2002, the quantity sold of imported raw sugar increased by
82 percent from 9,865 MT to 17,985 MT, while sales of domestic raw sugar
contracted by 18 percent from 46,787 MT to 38,080 MT. With projected
output of only 170,000 MT of raw sugar during 2002/2003, and the
possibility that Jamaica will, for the first in three years, deliver raw
sugar under the U.S. tariff rate quota. The volume sold of raw sugar on
the domestic market is expected to increase significantly during
2002/2003.

At the retail level, sugar consumption remains stable. The expected
decline in the consumption of refined sugar resulting from the GOJ's
policy amendment will be offset by an increase in the consumption of raw
sugar at the retail level. Artificial sweeteners are used only by a
minority and mostly for health reasons, i.e. diabetes. Sugar prices have
remained fairly stable. This has helped to maintain consumption levels.

**Trade**

Jamaica continues to satisfy its quota allocation, while importing both
raw and refined sugar to meet domestic demand. The European Union quota
remains at 127,000 MT with an additional 50,000 MT under the Special
Protocol Sugar arrangement. The U.S. tariff rate quota allocation of
11,580 MT is especially prized by Jamaica's sugar industry. In some
instances the Certificate of Quota Eligibility is exchanged instead of
delivering sugar.

During the 2001/2002 crop, Jamaica exported 138,133 MT of raw sugar
valued at US\$ 66,801,283, a decline in quantity and value from the
2000/2001 crop of 11.96 and 6.51 percent, respectively. The less than
proportionate decline in total revenue was due primarily to exchange
rate gains arising from a slight appreciation of the Euro vis-à-vis the
US dollar. When compared to average exchange rate for 2001, the industry
gained US\$1.9 million from changes in the exchange rate. Of the 138,133
MT exported during 2001/2002, the amount of 123,339 MT of protocol sugar
went to the United Kingdom at a value of US\$58,116,820. Additionally,
14,750 MT was shipped to Portugal under the Special Preferential Sugar
(SPS) arrangement at a value of US\$7,209,090. For a third consecutive
year, no sugar was shipped to the United States, but the Certificate of
Quota Eligibility was exchanged with Commodity Credit Corporation for
US\$1,447,875 .

On the import side, raw sugar imports increased by 10.18 percent, as
local production fell short of domestic and export demand. During the
2001/2002 crop, 16,336 MT of raw sugar was imported by the Sugar
Industry Authority, compared to 14,826 during 2000/2001. Raw sugar
imports is project to increase by a further 12 percent during 2002/2003
to 18,296 MT during 2002/2003. As sugar industry continues to be
characterized by sub-optimal output, raw sugar imports is expected to
fluctuate between 18,000 MT and 22,000 MT in the short to medium term.

Jamaica will continue to import refined sugar as long as the export
markets remain a priority and local production falls short of the
industry's viability target. The real influencing factor is the extent
of growth in the manufacturing sector, particularly the carbonated
beverage industry. Since the deregulation of the refined sugar import
policy, Jamaica imports refined sugar from over seventeen countries. The
United States is the main supplier of refined sugar, accounting for
approximately 42 percent of total imports during 2000/2001. Other major
suppliers include Columbia (35.8%), UK (11.3%), Guatemala (7.2%), Mexico
and Brazil. Total annual import of refined sugar has remained constant
at 68,000 MT since 1999/2000 and is expected to show only modest growth
into the medium term. The Sugar Industry Authority is currently
exploring the feasibility of upgrading the Monymusk sugar refinery to
fulfill local demand of 60,000 MT of refined sugar annually. If the
project is feasible, and investment capital is available, this could
reduce refined sugar imports and expand the area under cultivation and
sugar cane production.

**Stocks**

The liberalization of refined sugar importation allows the Jamaica Cane
Products Sales (JCPS), private brokers and manufacturers to import and
hold stocks of refined sugar. Raw sugar stock is held exclusively by the
JCPS. As of October 31, 2002 the JCPS held 3,837 MT of raw sugar and
2,005 MT of refined sugar, down from 14,437.55 MT and 388.44 MT,
respectively. With the deregulation and increasing storage costs,
independent importers do not hold significant stocks of refined sugar
for any extended period.

**Policy**

The GOJ has made public its intention to re-privatize the sugar industry
within the next five years. After an unsuccessful divestment in
1994/1995, the GOJ re-acquired the bulk of the industry in 1998. The
GOJ's decision to assist the industry was based on the fact that the
industry is a major foreign exchange earner, provides employment to
approximately 40,000 people, and benefits from preferential trading
agreements. However, faced with an increasing trade deficit, a high
external debt burden, and the negative trade implications of the EU's
Everything But Arms initiative, the GOJ has determined that the industry
cannot exist in its present high cost-low productivity status.
Consequently, a committee consisting of representatives from financial
institutions, Ministries of Finance, Trade and Agriculture, and sugar
industry officials was composed to draft a plan for the future of the
industry. While diversification out of sugar production is a likely and
well-considered option, re-privatization after a J\$3 billion investment
is the first and unanimously preferred proposal.

The government has proposed an adjustment to its 1994 liberalized
refined sugar importation policy. Prior to 1994, Jamaica Cane Products
Sales (JCPS), the central marketing agency for the sugar industry,
maintained monopoly power in the importation and distribution of refined
sugar. A benchmark price regime for the determination of duties on
imported refined sugar was adopted from 1994 to 1999. The benchmark
price regime identified a price (related to refined sugar prices in the
major international markets) below which any refined sugar entering the
island would be subject to an Additional Stamp Duty to equate it to this
price. Due to international price volatility (which makes it difficult
to maintain a reasonable benchmark price) and deliberate over-invoicing
by importers, the system was replaced with a two-tiered method of tariff
determination. The two-tiered tariff system accommodated duty-free entry
of refined sugar for manufacturing purposes, while refined sugar for the
consumer market (retail) attracted a 40 percent Common External Tariff
(CET) plus a 63 percent stamp duty. Due to entry of duty-free sugar
(imported for manufacturing) to the consumer market and the resulting
disruption in domestic demand for brown sugar, the government has
proposed an amendment to its importation policy. The new proposal, still
being debated, would grant import licenses to large manufacturers and
the JCPS. Small and medium-sized manufacturers would source refined
sugar from an exclusive broker, the JCPS, at duty-free rate plus a
marginal mark-up. Retail distribution of refined sugar would be the
responsibility of the JCPS.