HASCO CLOSES ITS DOORS
Note : Published in May 1987, in the Haiti Times, the closing of the Haitian American Sugar Company.
On Wednesday, April 8, the oldest sugar refinery in operation Haiti, and its largest, announced it was shutting its doors. The Haitian American Sugar Company (HASCO) through the voice of its administrative directors justified its decision by the fact that the local market was flooded by less expensive contraband sugar, coming mostly from the Dominican Republic. Termination of HASCO activities will affect more than 3,000 full-time employees, and almost 20,000 people, either planters or people involved in seasonal activities. The announcement came only a few days after the sugar industry had suffered another severe blow: the Usine Sucriere des Cayes (USC) was also closing down its operations, putting out of work roughly an equal number of people.
Already, the two state-owned sugar mills were not in operation anymore. The Usine Sucriere Nationale de Darbonne (USND) in the Leogane area was forced out of business by Finance Minister Delatour in the fall of 1986. As for the Usine Sucriere Citadelle (Welsh) in Cap Haitien, it also closed its doors for lack of efficiency and productivity. With the two privately-owned sugar refineries putting a halt to their production, Haiti cannot be considered as a sugar producing country anymore.
Globally, the sugar industry is in very bad shape. Prices for the commodity have been falling drastically in the past years, due mainly to increased production of sucrose in traditionally importing countries in North America and Europe. In these countries, sugar beet and corn production (the two most popular alternatives to sugar cane) are heavily subsidized by governments to insure stable incomes to the producers. Further protection of their local production infrastructures has led countries to impose quotas on the importation of sugar, the United States being the last country in line to reduce its imports of sweets.
In 1986, the U.S. have bought from 23 Caribbean markets 1.16 million short tons of sugar, representing trade values of $431 million. For the current year, the sugar quota from 22 nations (Nicaragua having been excluded for political reasons) is only 620,930 short tons, a value of $231 million. Six years ago, U.S. purchases of sugar from Caribbean and Latin American nations represented roughly $1 billion. The three biggest importers are the Soviet Union (not a sugar producing country) with 5.76 million tons in 1984, the United States with 3.13 million tons for the same period (although it produces 2.7% of world production), and China with 1.22 million tons. The global sugar trade represented 28.32 million tons that year, a value of more than $16 billion.
But total trade value estimated in dollars is a misleading rule of measure for the sugar business. In 1984, sugar was sold on U.S. commodity exchanges at 4 cents a pound. The European Community countries were offering 16 cents a pound, a mixture of support prices for developing nations and local production incentives. In the same "support" philosophy towards Cuba, the Soviet was evaluating sugar at 36 cents a pound, most of it bartered for the equivalent money value in petroleum products which Cuba can resell on international markets and thus earn foreign currencies.
Diet consciousness and the use of chemical substitutes have reduced by 6% the demand for sweets in the past years and it is estimated that there exists billions of pounds of sugar stockpiled throughout industrialized countries. According to Richard Lyng, U.S. Secretary of Agriculture, the sugar programme in the United States, consisting in reducing imports and increasing production is quite successful. "If the current trend continues for another two years, the prevailing sugar programme will make the U.S. self sufficient in the production of sweeteners for the first time in its history" said the official. But producers are finding the bullet hard to bite. For example, debt-ridden Brazil is the largest producer in the world with 26.5% of the production in 1985. It is followed by India with 18% and Cuba with 8%. Except for the latter who is heavily subsidized by the Soviet Union, the first two are forecasting bleak perspectives for their export earnings in the coming years. Other nations appearing on the roster of large world producers include Mexico (5th), Pakistan (6th), Colombia (9th), the Philippines (12th), Argentina (14th) and the Dominican Republic (15th). This last country produces 1.1% of the world output, and sugar represents its major source of revenue.
The recent cut in U.S. quotas will mean a loss of $60 million in exports annually, and the worsening of the unemployment situation. In the Caribbean region as a whole, sugar represents 2.5 million jobs directly. In the wake of a market disturbed by oversupplies, falling prices, and tightening markets, it is comprehensible that Haiti fell prey to contraband and dumping from its neighbor nations. But comprehensible does not equate with acceptable for a lot of people. The mistake made by previous governments to enter into state-owned industrial schemes has been documented more than once. In a country profile drawn by the World Bank in 1985, the authors of the report stated "All five (Haitian sugar mills) should be treated as if they were unprotected private firms and forced to compete against imports without their special status in line with the structure of world prices and Haiti's comparative advantage. This would make the two sugar mills unviable and means they should be closed."
Why were the sugar mills in Haiti, either privately or state-owned not competitive on the world market? One of the problems mentioned in the World Bank report has to do with prices paid to the cane producers, $13 dollars per metric ton at the time, which constituted "a clear disincentive to cane producers to sell to the factories. Rather, most producers choose to sell their cane to the traditional guildives. Pricing policy for the sugar industry, therefore, has been self defeating; inadequate cane prices have led to lower cane supplies, which have put further pressure on prices. As a result, Haiti has gone from a position of a net exporter to a net importer of sugar. Between FY71-74, production of sugar averaged 65,000 tons per year, of which 21,000 tons or 32% were exported, whereas from FY81-84, production had fallen to 46,000 tons per year and imports averaged 23,000 tons. The World Bank report also criticized the $0.08 tax per pound imposed by the government which added to a profit margin of $0.02 provided a retail price of $0.34 per pound, $0.38 for refined sugar. It stated: "These prices are well above international levels and reduce consumer's welfare. They are also stimulating an increasing flow of contraband sugar from the Dominican Republic."
The World Bank proposed a series of short-term corrective measures, including the reduction of taxes and the introduction of a system to pay farmers according to the sucrose content of their cane. Longer-term measures referred to closing the publicly-owned sugar mills. Two things need to be understood at this point: 1) the land tenure of cane fields; 2) the "conversion rate" of sugar cane. As a result of the 1804 revolution of independence, Haiti is one of the only (if not the only) country where the large plantation concept was abolished. After the war ended, the land was distributed among the individuals in relatively small plots. For sugar cane cultivation, this means less centralized facilities and the impossibility to realize scale-economy savings for irrigation, harvesting, transportation to the mill, etc.
In an 1983 survey in the Plaine de Leogane area, it was found that 91% of the famers cultivated plots of less than one hectare, and that they occupied almost 39% of the area under cane. Only 40 farmers had holdings above 10 hectares, covering 37% of the area. The remaining 24% was in holdings between 1 and 10 hectares. One hectare is equal to 2.47 acres. Since many small farmers intercrop cane with other production and regard it as a savings account, they prefer selling it to the traditional guildive (producing syrup and clairin year-round) than sell it to the sugar mills with a 3-4 month milling season. The second point needing to be analyzed is the "conversion rate" of sugar cane, that is the amount of sugar cane needed to produce refined sugar. This conversion rate is influenced by several factors. All cane species are not alike, and some will yield more cane juice than others.
In a 1982 study conducted by Capital Consult S.A., a local consulting firm, for the Office National de Promotion des Investissements (ONAPI) and sponsored by the Haitian-German Cooperation Project, it is reported that the species cultivated in Haiti are "degenerated" varieties, yielding low output, in spite of all the care one can give the plants. Timing of harvesting is also important, just as the speed at which it can be processed after harvest, and of the equipment used to crush the cane and extract the juice or sap. As an example, the conversion rate at the state-owned Cap Haitien facility, from 1977 to 1983, fell from 19 to 26 tons of cane needed to produce one ton of sugar. By contrast, at the privately-owned mills of Cayes and at Hasco, conversion rates were respectively 15 and 10 tons of cane for one ton of sugar. Changes in management operated at Cap Haitien had the effect of reducing the conversion rate to 18 by 1984, but a bit on the late side.
The demise of the sugar industry can then be attributed to a series of factors, including lack of raw materials and adequate infrastructures, high taxation levels, poor management in publicly-owned processing facilities. Four sugar mills was more than the country could absorb. Enters the contraband factor. In the past three years, even before the change in regime, contraband was growingly visible in the country. Maybe the most conspicuous aspect was that of cigarettes. Then it was alcohol, tomato paste, assorted foodstuffs, rice, cement and sugar. It was inevitable that a local industry incompetitive as sugar was would feel the aftershocks of contraband. But it is to be noted that the Haitian government was the first to (legally) import sugar into the country. Having been allowed export quotas by the U.S. a few years ago, the Haitian government then sold sugar produced in Haiti to the States, pocketed the foreign currency, and then bought surplus stocks from the Dominican Republic at discount prices to be consumed on the local Haitian market.
If anything is to be understood from the apparent apathy of authorities towards contraband is that the illegal entry of goods on the local market contributes to annihilate inflationary trends, an International Monetary Fund and World Bank imperative (among others) if Haiti is to benefit from grants and loans from these institutions. In this journalist's opinion, next in line to suffer from contraband will be Ciments d'Haiti. Cement bags are the new hot product on incoming wharfs accepting contraband shipments, and the price is 40% lower than the locally produced material. On March 8, there were 5 ships unloading cargo at Gonaives, another 15 waiting to be unloaded. On the other hand, social tensions brought upon by massive unemployment because local industrials and merchants are closing their doors is a thin line to walk. Immediate reconversion of the tens of thousands of former sugar industry workers is impossible.
The "Compete or else..." attitude towards the local industry may not serve its purpose in the end. What will happen when the grants and concessionary loans run out? How many industries will have withstood the invasion of foreign products? Where will the economy of the country stand then? Or will those be the problems of a civilian president-elect with no economic leverage and facing widespread human and social tensions?
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