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The Sugar Worker, February & March 2004. News from the Sugar Sector.

Posted to the IUF website 15-Mar-2004

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The Sugar Worker
Information and Analysis for Unions in the Sugar Sector
Volume VI, Number 2 & 3
February - March 2004


Barbados: BWU Signs New Agreement

On 6 February, the Barbados Workers' Union (BWU) and the Barbados Agricultural Management Co. (BAMC) and the Barbados Sugar Industry Ltd. (BSIL) reached a three-year agreement in the sugar industry. The agreement covers the period from 1 January 2004 to 31 December 2006, a time when the industry is to be restructured, and only one mill will be left operating by 2005. Another mill was closed at the end of the 2002 harvest.

The agreement grants an in- and out-of-crop hourly wage increase of 2 percent in Year One, and a compounded 3 percent for each Year Two and Three. A review of premium pay to factory shift workers for work in excess of 40 hours per week, during crop, would be completed by September 2004. To encourage productivity, employees would receive an additional day's pay, at the normal rate of eight hours, once targets are met in certain performance indexes like milling rates, factory time efficiency and overall factory recovery.

A Joint Job Evaluation Committee will review some factory jobs by July 2004, and the parties agreed to set up a sub-committee to review all agricultural task rates. The BWU has submitted its proposals to the company for consideration.

The BAMC agreed to allowances to some categories of factory workers, engaged in specific tasks in- and out-of-crop, in particular the cleaning and repairing of evaporators, heaters and vacuum pans. The agreement also fixes payments for Public Holidays, extra time and performing jobs in an upper category. The company commits itself to inform the union in writing at the earliest opportunity when it intends to sub-contract services usually provided by employees in the bargaining unit. There will be a consultation process, which would include exploring ways to avoid dismissals, reduce the number of employees to be dismissed as a result of sub-contracting, and mitigate the consequence of the possible dismissals.

Wage negotiations were completed before the 2004 harvest started on 16 February. Production estimates are at 40,000 tonnes, on the optimistic side, which compare to the approximately 35,000 tonnes of last year. Industry sources said that the 2003 crop experienced a series of difficulties like a massive "down-time", bad weather, and late start of the harvest, in addition to the closure of the Bulkeley mill, as the restructuring program was put in place.

While the restructuring program aims at reducing the size of the industry and attempts to make production more efficient, the European Union (EU) decided to cut Barbados' sugar quota from the current 54,000 to 35,000 tonnes per year: the island has not been able to fulfil her EU quota for several years. This represents a significant loss, in several fronts, because of the high preferential prices paid by the EU. In addition, the cane farming community is said to be "nervous" about the future of the sector. Independent growers account for some 16,000 acres (6,475 hectares) of cane lands, with CLICO Holdings, Sir Charles Williams, and the Barbados Farm Limited as the island's three largest independent cane growers. The BAMC, which runs the two sugar factories, controls another 10,000 acres (4,040 h), with some land leased to independent growers.

Trinidad: Sugar Industry Two Steps Closer to Its Collapse

On 11 March, some 400 workers at the Usine St Madeleine walked off their jobs in demand for higher wages and better working conditions, shutting down cane processing in the whole island. The strike puts the 2004 harvest in serious risk, a harvest with a production target of 60,000 tonnes, well below the average of 100,000 tonnes of the late 1990s.

The St Madeleine is run by the Sugar Manufacturing Company Ltd. (SMCL), which aims at exporting 55,000 tonnes to preferential markets: 48,000 tonnes to the European Union and 7,000 tonnes to the United States. (The 2004 crop is the first harvest with one operating factory, a new sugar manufacturing-only company - the SMCL - with subcontracted employees.)

The Sugar Manufacturing Co. Ltd. (SMCL) said if the workers do not resume work by 16 March, the company would look for a new contractor and new workers. Ironically, the protesting workers are former employees of the now dismantled Caroni (1975) Ltd., who were subcontracted - albeit with no written contract - by Alprom Ltd., a company headed by a former Caroni manager. Alprom has a six-month contract with SMCL. By Sunday 14 March, the police was called to remove the strikers from the Usine St Madeleine compound. A spokesperson for the workers told the Trinidad Express: "We are working in the factory since last year, but up to now we have no written contract, so we not sure how we working or what for." The SMCL should not look further than this to understand (and effectively deal with) the causes of the strike and the labour unrest that has plagued it since replacing Caroni last September. Ignoring realities, a spokesperson said the SMCL has "asked some ex-factory managers who know all these people to start putting together a list (of workers) for us." With the strike the SMCL loses 1.75 million Trinidadian dollars per day (USD 284,500) in revenues, it was said.

The 2004 crop started on 12 January and is scheduled to end on 22 May, but it might have to be extended because of the difficulties it has faced until now.

The strike by subcontracted workers, who comprise all the labour force at the St Madeleine, is adding to the uncertainty that prevails in the sector for some time. Because of the strike, cane farmers were not able to deliver their cane, and the SMCL stopped buying it: several hundreds of tonnes of cane piled up on the purchasing compounds, while burnt cane was waiting in the fields to be harvested, reported local newspapers. Cane farmers organisations said that although the strike created difficulties for them, the SMCL has not been on a good standing, delaying cane payments and triggering a series of payment defaults by the farmers, including with their workers who might decide to look for other jobs. An extreme position was taken by the Trinidad Islandwide Cane Farmers Association (TIFCA) who demanded that farmers should be allowed to take a lead role in the recovery of the industry, and called the government to intervene and resolve the workers' strike. The TIFCA added, "If the strike and other disincentives to a good crop are not resolved we shall move to have the government shut down the sugar industry… permanently."

The government's position regarding the future of the industry is not encouraging. The day before the strike erupted at the St Madeleine, Trade Minister Ken Valley addressed the Chamber of Commerce of Couva/Point Lisas in the country's sugar belt, and newspapers quoted him as saying that local manufacturers (i.e. sugar industrial users) were paying too much for the domestically produced sugar, when they may buy much cheaper sugar in the international market and be more competitive. He added that Guyana "could become the refining capital in the (Caribbean) region." So much for government support and a future vision for the sugar industry in the island.

Mexico: GAM Recovers Expropriated Mills

On March 12, complying with a ruling of the Judicial Power, the Office of the Secretary of Agriculture returned the Presidente Benito Juárez sugar mill to the Grupo Azucarero México (GAM). The mill is located in Tabasco, with a 7,200 tonnes of daily capacity (tdc), and is the fourth mill returned to the GAM. The government had already transferred back the Lázaro Cárdenas (Michoacán, 2,200 tdc), the José María Martínez (Jalisco, 4,000 tdc) and El Dorado (Sinaloa, 3,600 tdc). The GAM won the right of protection in the process of expropriation of September 2001, in which the government took over 27 of the almost 60 mills in the country.

Initially, the GAM had interposed a demand of protection on six expropriated mills, but in November of the 2002 desisted of two, the San Francisco and the San Pedro, both in Veracruz. The GAM had mentioned a demand for compensation of between USD 60 and 85 million on these two mills, which would be used to pay debts with financial institutions. This demand is not part of another demand announced in August of 2003 that the GAM would launch for damages, calculated at between USD 80 and 100 million. "In that time (after expropriation), a representative of GAM said, the mills were profitable and the government should hand back the profits." The GAM would also seek compensation on dismissal of personnel, legal costs and loss of market share (at the moment of expropriation it was the second largest sugar group in Mexico).

The GAM said its mills were in reasonable condition in September 2001 and the expropriation was unfair, an opinion shared by local analysts, who said the GAM had paid the debt on the privatised mills, that it was the group with less debt within the expropriated mills (about 2.2 percent of the total debt of the sector), and that before the expropriation, it had already signed contracts with cane growers and guaranteed payments for the cane of the 2000-01 crop.

Nevertheless, union sources in the José María Martínez mill said that the GAM had not been a good employer: in the two years previous to the expropriation the GAM delayed contributions to the workers' pension plans, did not given adequate maintenance to the mill's machinery, and was late in paying bonuses for Christmas and holidays. After the expropriation, the sources said, payments were regularized, investments carried out, and the refinery distributed utilities for 17 million Mexican pesos (USD 1.5 million) last year.

Al present, the Mexican government controls the two mills that the GAM dropped from the legal process, two from the Fideliq (a liquidation trust), and nine from the Consorcio Azucarero Escorpión (Caze). The legal process on the latter is about to finalize and would probably favour the government. Still to be completed are the processes on four mills expropriated to the Machado Group and six to the Santos Group.

In other news from the sector, ED&F Man, the broker house based in the United Kingdom, announced a joint venture with Consorcio a Mexican food and hotel group, which would operate in the domestic market. ED&F Man agreed to reorganize debts of Agazucar, a division of Consorcio, and acquire an important minority share in it. In the future, it was said, sugar produced by Agazucar would be marketed by a new joint business, Compañía Panamerica de Comercio SA de CV (COPACP). Consorcio AGA owns The Mochis mill (factory, distillery, refinery), with 7,000 tonnes of the daily capacity in Sinaloa.

Kenya: COMESA Trade Safeguards Until 2008

Kenya has been granted a third - and probably last - extension on safeguards in sugar trade by COMESA, the Common Market for Eastern and Southern Africa. The safeguards allow Kenya to continue with a 200,000-tonne quota on duty-free sugar imports from COMESA members, until February 2008. Sugar imports out-of-quota pay 100 percent tariff. The duty-free quota was determined in 2002, as the estimated deficit between 600,000 tonnes in domestic consumption and 400,000 tonnes in production.

Although granted the extension, Kenya faces now the challenge on the way the sugar under quota will enter in the country. The quota comprises two parts: 111,000 tonnes of refined sugar for industrial use, and 89,000 tonnes of brown sugar. The government wants deliveries during the out-of-crop period, when domestic producers are not operating, in particular of brown sugar. The Kenya Sugar Board (KSB) proposed monthly imports of 22,250 tonnes of raw and white mill sugar ("brown") from March to June, for a total 89,000 tonnes; and 55,500 tonnes of refined sugar for industrial use in each half of the year: from January to June, and July to December, for a total of 111,000 tonnes. COMESA officials criticized the schedule, saying that although a quota is in place, deliveries should not be controlled.

Meanwhile, speculation is rife on who would receive the import licenses, as huge profits are expected to be made by importing duty-free sugar into the high priced Kenyan market. Local papers said that some 80 companies are licensed to import sugar, but only 20 of them have some history in the trade, and the majority of the remaining has been incorporated only recently and might in actuality be a façade for politicians and brokers.

An interesting piece of news was provided by the Sugar Corporation of Malawi, an important supplier of COMESA sugar, who said that it had contracted sugar bound for Kenya with two large traders: MAT International and ED&F Man from Kenya. MAT International, said the local paper The Nation, has exclusive rights on 11,200 tonnes, while ED&F Man on 10,000 tonnes. Malawian sugar might not be an isolated case: apparently some big importers have already signed similar contracts with producers in Egypt, Swaziland, Zimbabwe and the Sudan, all COMESA members able to sell duty-free sugar to Kenya.
Kenya first qualified for the safeguards in 2002, which were extended for one more year, and in 2004 the safeguards were granted for a 4-year period, until February 2008, on the basis that they would protect the domestic industry while it is being reorganized to become more efficient.

On the difficult task of making the sugar industry more efficient and able to compete, local sources said that the sector requires some USD 256 million to develop sugar cane growing, modernize factories, and improve the marketing and distribution systems. The fresh investments should be realized in the next three years, before the COMESA safeguards are lifted. In the same discussion some options have been mentioned, such as for the sugar factories to start generating electricity for sale to the national grid. To that effect, the Electric Power Act has been amended and the Kenya Power and Lighting Co. said it has the capacity to buy all energy produced in the sugar belt, which independent analysts estimated at 300-350 megawatts.

On the other hand, the Kenya Sugar Board (KSB) said it had plans to set up two refineries in Western and Nyanza Province to produce some 110,000 tonnes of white sugar, which is the current production deficit. The refineries would be in operation by 2006, said the KSB. The government is also considering the privatisation of Muhoroni, in receivership for the past three years, and is pushing for the resolution of the legal problems in Miwani, also under receivership, related to one creditor's attempt to sell the 10,000 hectares of the nucleus estate. It was also said that Kenya and Cuba signed a two-year agreement to transfer Cuban technology and irrigation systems to help with the recovery of the industry.

Whether the government and the sugar industry would be able to walk a clear path of reorganization and recovery in the next three years is something debatable, given the recent history of mismanagement, corruption and inefficiency prevalent in the sector. In an example of the problems to overcome, The Nation reported on 12 March that government officials were "amazed" at finding that equipment for the sugar industry worth 10 billion Kenyan shillings (USD 129.5 million at present rates) has been lying idle for almost 13 years, that even some of it never got into the country from Belgium and the United States. The equipment, said the paper, had been purchased by the government to expand the processing capacity of the Nzoia Sugar Company (NSC) factory from 3,000 to 7,000 tonnes per day. The current chairman of the NSC board said that corrupt government officials and company managers were responsible for the "delay" of the expansion project.

Vietnam: Restructuring Proposed

On March 4, the Vietnamese government passed Decision 28 proposing the restructuring of about 30 of the country's 41 sugar factories, through privatisation or lease. The government's decision classifies the sugar factories in three groups. The first group, according to the Asia Times, comprises eight factories: Lam Son; La Nga; Binh Dinh; Nghe An Tate & Lyle; Nagarjura Long An; KCP Vietnam; Bourbon Tay Ninh; and Bourbon Gia Lai, which are considered to be financially well. These will continue operating and receive government support, like the writing off of their value-added tax (VAT) for 2001-03, providing it does not exceed their accumulated losses to 31 December 2003. Those join venture companies, which many of the eight listed above are, who borrowed capital to built factories will have access to lower interest rates as applicable to investment and development credits. The government would cover the differential between the commercial and preferential rates.

A second group includes most of the country's sugar factories, which are considered not to be in good financial state, and they would be sold or leased. The factories would enjoy preferential rates on loans contracted before 31 December 2003, and loans in foreign currency contracted after 1 January 2004 will be converted into local currency at rates determined by the Ministry of Finance. All these "soft loans" would be for a maximum of 15 years, starting January. The government will also write off interest on loans from commercial banks, the VAT for 2001-03, and will cover any losses related to foreign exchange fluctuations on imports of equipment during 2003, still to be completed.

The third group consists of factories that will not continue in their present form: the Quang Binh and Quang Nam will be relocated to areas with more adequate cane supplies; while the Viet Tri Sugar and Beer Alcohol Co. became the only factory ordered to be closed and devoted to other businesses. (Based on reports by the Asia Times.)

Sugar Trade: US-Australia Sugar-Free FTA

On 8 February, the United States and Australia reached a Free Trade Agreement (FTA) which does not include sugar, a fact that generated applauses from the US domestic sugar and disappointment among the Australian sugar crowd. The final round of negotiations in Washington lasted three weeks, and took a phone conversation between the Australian Prime Minister and President Bush on 7 February to break an impasse in the negotiations. In an apparent trade-off, reported Dyergram on 11 February, sugar was left out of the FTA, in exchange to leave the Australian Pharmaceutical Benefits Scheme unchanged - the US drug companies were after it. Close to 97 percent of Australian manufacturing exports will enter the US duty free, while 99 percent of US manufactured goods would be imported duty free into Australia; and the US entertainment (movies, TV), telecommunications and banking sectors will enjoy improved opportunities in Australia. The agreement has to be ratified by Congress.

While the US domestic sugar hailed the US/Australia FTA, some US farm groups were not that enthusiastic, as they felt that excluding sugar was a bad precedent for negotiating better deals with other countries.

In Australia, the sugar giant CSR said that the deal (without sugar) increases the uncertainty around the future of the industry, which will be reflected on more precarious job security for its employees. In fact, a trade union representative said that in a recent negotiation, the company did not offer employment security, but the unions were successful in negotiating a redundancy provision into the agreement.

On 13 March, U.S. Sugar, a Florida-based sugar company, dismissed 29 employees from its Palm Beach County agricultural equipment shop, because "people (in the US) are eating less sugar, and there's more sugar-containing products from other countries," said the company's vice president. More lay offs are expected, but not immediately, said the local Palm Beach Post. U.S. Sugar has laid off 55 employees in the past year, reducing its labour force to 2,100. There were 327 jobs cut in September 2000. An U.S. Sugar employee with 27 years of service interviewed by the paper said he "never figured they would lay us off." He is 57 years old and will receive one week's pay for each year of service in exchange for a USD 50,000 a year job as an electrician. U.S. Sugar said it aims at cutting operating expenses by USD 11 million this year, and expects to produce 830,000 tonnes of sugar in 2004.

Company News

Germany: Südzucker to Produce Bioethanol

The world's largest sugar company, the German giant Südzucker, announced in early February that it would build a new bioethanol plant in Zeitz, in East Germany. The plant would be completed by 2005 and operate in conjunction with a sugar factory, report the Food Navigator in its web site.

The company said that it would invest 185 million euros (USD 226.6 million) in the plant, which would have an annual production capacity of 260,000 cubic meters of bioethanol. The main raw material will be wheat, but by-products of sugar production and other cereals would also be used. Südzucker added that the plant would require some 700,000 tonnes of grain per year to produce the ethanol, which correspond to some 100,000 hectares of land. A by-product of the ethanol production would also be sold in the animal feed market. Zeitz was chosen as a location, said the company, because of "political support… and easy availability of raw materials."

Brazil: Cosan Continues Expanding

In early February, the Cosan Group, reckoned as the largest sugar and alcohol company in Brazil, announced the acquisition of the Usati refinery, from the Portobello Group, located in the Ilhota municipality in the state of Santa Catarina (SC). The Usati, renamed New Usati refinery, produces 24,000 tonnes of sugar per month, and is part of Cosan's new strategy towards the international market: because of its location, next to the Itajaí port in SC, the Group would export close to 70 percent of the production of the New Usati refinery.

Last October, the company said it was developing new strategies to expand its international businesses, including raising capital through bonds in both the New York and domestic markets, and would continue forging international alliances and joint ventures. At present, the Cosan Group controls 12 factories in Brazil, has revenues estimated at USD 1.8 billion, and produces 2.5 million tonnes of sugar and 1.2 billion litres of alcohol. Cosan is partner with the French Union SDA in three sugar and alcohol factories in Sao Paulo.

United States: Correction to Article on Florida's Cane Cutters

One of our readers sent us a note explaining that the news on the Caribbean cane cutters in the Florida sugar industry that appeared in Sugar Worker, January 2004 does not refer to recent events. Apparently, a sugar group reproduced an old article from a Florida newspaper, which was then picked up by specialized publications (thanks to Internet?), including the one Sugar Worker used as a basis for the article. Thanks to RM for the note: it seems that our readers do actually read us.