The Weekly Report: Return of King Sugar?

16 February 2012

“The European Union (EU) handed over a cheque for 16.585 million euros (TT$134.2 million) to the Government yesterday to aid in restructuring the country’s sugar industry.
The State-controlled sugar industry was disbanded in 2007 with the closure of Caroni (1975) Ltd and the then PNM administration approached the EU to help facilitate a National Adaptation Strategy for former sugar workers to promote life after sugar.”
T&T Express (February 9th, 2012)

Sweet as you like! I thought all the E.U.’s money was tied up with…well, you know.

At any rate, would you like your morning cup of diversification with one sugar or two?

The call for re-establishment of a fruitful sugar industry prompts an examination of the current state of the sector and the concomitant benefits and drawbacks (locally and internationally) that should help to inform your opinion on whether sugar represents a way forward or not.

Diversification in terms of industrial sectors, just as with your financial portfolios, can greatly minimise risk, and facilitates sound strategic planning since shocks caused by depressions in business cycles (or unexpected shocks) can be mitigated.  Food sufficiency is reportedly high up on the government’s wish list, so how does a restructured sugar industry figure into these plans?

Apart from potentially lowering the country’s dependence on the energy sector, success in sugar can greatly reduce our food-import bill which significantly contributes to core inflation.

The table below gives you an idea of who the leaders are in today’s world of sugar:

Essential to knowing who you are, is to know who you are not. With this is mind, Trinidad and Tobago is neither an expansive or populous nation like those mentioned on the list. Therefore, our primary aim should be self-sufficiency rather than attempting to become a leader in production and export. In terms of the macro-economic variables which can be influenced here, I’d say all – price stability, employment, economic growth and development, balance of payments and a balanced budget.

Sugar can be even ‘sweeter’ when used in ethanol production. Colombia’s sugar-ethanol industry became the most developed among all South American nations except Brazil after only three years. Given rising and/or volatile oil prices, the significant potential for expansion of global sugarcane production as ethanol feedstock has resulted in a heightened global focus on sugar and ethanol as internationally traded commodities (FAO). In a nutshell, there are success stories close to our shores which we can study, internalise, tailor and improve upon.

Important to note however, is that ethanol production from sugarcane can come at the expense of other crops. In Brazil the price of traditional food crops has been driven up due to devoting fertile agricultural lands to sugar. Feasibility studies in our local context will shed light as to whether sugar could or should be crowned King once again.

This excerpt from The Economist should give you ample food for thought as to why sugar might deserve a second chance:

“The world’s collective tooth is getting sweeter. Increasing wealth in developing countries has raised demand for the nicer things in life, just as economic insecurity in developed countries means more people are reaching for the cookie jar for comfort.”

Looking at the trend-line below, the seemingly ever- present mantra of ‘CAUTION’ seems to have hit sugar prices as well. If you’ve been keeping up with our weekly submissions though, this may represent an opportunity for T&T to enjoy some upside, as global markets continue to heal and forge a way forward.

Until we source further information on the regeneration of the sugar industry in T&T, the intent of this week’s blog post is to give a brief view on what re-entry to the sugar arena may mean for the nation. So, while you’re jumping up and playing your collective selves, spare a little thought about whether T&T should have ah weakness for sweetness.

Have a great Carnival 2012!

Gerard Stephens
Account Executive, Sales & Trading

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