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Sugar Transformation Programme

Sugar Transformation Programme. Background.

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Sugar Transformation Programme

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  1. Sugar Transformation Programme

  2. Background • In 2003 Australia, Brazil and Thailand submitted a complaint to the World Trade Organization (WTO) challenging the legality of the subsidies applied to European Community sugar. Arising from the WTO ruling in favour of the three countries, the European Union (EU) in November 2005 agreed to reform its sugar regime. • This resulted in the decision to reduce the price paid to ACP countries by 36% over the period 2006 to 2009.

  3. Background Cont’d • The EU agreed to provide a package of assistance to assist ACP countries to adapt to the changes in the sugar regime, contingent on the preparation by these countries of Country Strategies. • Reform of the Sugar Industry had also become a priority for the Government, as the industry was a significant charge on the Budget. • The change in the EU trading arrangements therefore provided the necessary impetus to drive the much needed transformation of the industry.

  4. Jamaica Sugar Country Strategy • The Planning Institute of Jamaica lead the process of preparing the Jamaica Country Strategy for the Adaptation of the Sugar Industry, 2006-2015 (JCS I). • Preparation of the Country Strategy involved the participation of stakeholders in the island’s sugar industry, as well as representatives of public sector agencies, the private sector and civil society.

  5. Jamaica Sugar Country Strategy The JCS I was prepared in 2005 and approved by Cabinet in January 2006. The Strategy had three objectives, to : • Develop a Sustainable Private Sector-Led Sugar Cane Industry; • Strengthen the Economic Diversification, Social Resilience and Environmental Sustainability of Sugar-Dependent Areas; • Maintain Progress toward Macro-Economic Goals.

  6. Accompanying Measures for Sugar Protocol Countries EU assistance to ACP sugar producing countries is provided under a facility known as “the Accompanying Measures for Protocol Countries” (AMS).

  7. Accompanying Measures for Sugar Protocol Countries The core of the reforms supported by the EC AMS as specified in the annual Financing Agreements, are aligned with the JCS objectives and are as follows: • To develop a sustainable private sector led sugar cane industry by promoting investment in industry modernization and in the diversification of production towards higher value-added goods such as rum, ethanol, refine sugar and electricity from bagasse co-generation • To strengthen the economic diversification, social resilience and environmental sustainability of sugar dependent areas.

  8. Accompanying Measures for Sugar Protocol Countries • Having prepared its Country Strategy, Jamaica was allocated in 2006, an indicative amount of €82,765,000 in grant assistance for the period 2006 to 2010. This was subsequently increased to €86,634,000.

  9. AMS allocations to Jamaica

  10. Accompanying Measures for Sugar Protocol Countries cont’d • In agreement with the Government, the EU has separated the resources for AMS 2007, 2008 and 2009 to support two budget support programmes. • A total of €56.78 million is allocated to the Sugar Transformation Programme of which €1.97 million is for audits, evaluation, studies and technical assistance. • €29.85 million is linked to the Debt Reduction Growth Enhancement Programme (DRGEP), which is a general budget support programme aimed at the macro economy.

  11. Accompanying Measures for Sugar Protocol Countries cont’d • Budget support provides for the disbursement of resources directly to the Consolidated Fund. • Funds are released to the Consolidated Fund on the achievement of previously agreed conditions, which are detailed in the Financing Agreements between the Government and the EU.

  12. Agreed Conditions for Release of EU funds under the Annual Action Programme of AMSP Countries in favour of Jamaica-Support to Sugar Cane Sector The conditions assessed by the EU for the release of funds are both eligibility and negotiated conditions, and include: • Eligibility Conditions – Satisfactory progress on implementation of JCS; Satisfactory progress in maintaining a policy of macroeconomic stability and sectoral policy; and Satisfactory progress on implementation of the programme to improve and reform public finance management.

  13. Conditions for the Release of EU funds • Negotiated conditions – i) Progress towards the development of a sustainable private sector led sugar cane industry which includes privatization and establishment of a Cane Expansion Fund; ii) Policy and regulatory framework conducive to a market for locally produced ethanol and bagasse-fuelled cogeneration is in place; iii) Strengthened economic diversification, social resilience and environmental sustainability of sugar-dependant areas which includes Access to basic social services for displaced Sugar Company of Jamaica workers is maintained;

  14. Implementation of the JCS I 2006-2015 • An important achievement under the JCS I was the preparation of a Sugar Area Development Programme (SADP), approved by Cabinet in September 2008 • The initial period of the SADP is 5 years starting fiscal year 2008/2009 • Aspects of the SADP related to the provision of basic health and educational facilities became urgent with the termination of all Sugar Company employees.

  15. Implementation of the JCS I 2006-2015 Implementation of the JCS I encountered delays due to : • Protracted privatization process because of - lengthy procurement (the tender process commenced in May 2006 and ended in failure in January 2009.) - Change in administration in September 2007 - The global financial crisis • The process for valuation of assets and ownership resolution • Delays in amending the legislative framework for the use of ethanol

  16. Implementation of the JCS I 2006-2015 The following conditions were not achieved under the AMS 2007 which resulted in a suspension of the release of associated amounts : • Privatisation of sugar factories • Issuing of Regulations to mandate the use of ethanol, E10, as a replacement for MTBE in gasoline.

  17. Implementation of the JCS I 2006-2015 • The EU agreed to re-assess the conditions at a later date in 2009, and in 2010 approved release of resources based on the privatisation of one estate and the passing of legislation mandating the use of E10 in gasoline • However implementation of the JCS I continued to encounter delays due to the privatisation issue and other factors. • It was recognized that these delays could potentially result in the loss of resources to the country.

  18. Implementation of the JCS I 2006-2015 • With the agreement of the EU, in 2009 the Government decided to carry out a review of the JCS I, resulting in the preparation of a JCS II 2006-2020. • The JCS II takes the reform of the Sugar Cane sector through to 2020 continuing the transformation of the industry into a fully private, internationally competitive sector along with the development of the sugar dependent areas. • JCS II takes greater account of the current realities and seeks to establish a more realistic timetable to achieve the transformation.

  19. The overall objectives of the JCS II are similar to those of JCS I which are: • to develop and maintain a sustainable private sector led Sugar Cane industry; • to strengthen the economic diversification, social resilience and environmental sustainability of sugar dependent areas; and • to support progress towards macroeconomic goals.

  20. JCS II identifies three phases: • Phase I: Transition (2006/7-2009/10) - covering the transition to full privatisation and operating without the framework of the EU Sugar Protocol. Commencement of implementation of the SADP to support the recovery of the sugar dependent areas; • Phase II: Transformation (2010/11-2014/15) – The transformation of the sector to commercial competitiveness. On the social side, the enhanced economic and social development of the communities in the sugar dependent areas, supported by the recovery of the Sugar Cane sector. The benefits of privatization and sector recovery have a positive impact on macroeconomic parameters, as does the realization of sectoral support for the realization of national energy and environmental goals; and

  21. Phase III: Consolidation (2015/16-2019/20) - covering the consolidation of earlier reforms to achieve commercial, economic, social and environmental sustainability. The vibrancy of the SDA communities is expected to act as a counterweight to the drift to urban and tourism centres and reinforces their balanced demographic development. Continued economic strengthening of the sector supports macro economic growth and poverty reduction objectives.

  22. JCS II 2006-2020 • The JCS II recognizes the activities undertaken under the JCS I and extends the period from 2015 to 2020 with a Phase III for consolidation of the reforms in the sugar cane sector, implementation of the SADP and continued macroeconomic stability • The new strategy has also taken full account of the most recent national and sector policy environment such as the Medium Term Socio-Economic Policy Framework (MTF), 2009-2012 and the Vision 2030 for Jamaica adopted in 2009; the updated Energy Green Paper of 2009; the Ethanol Policy Options Paper of 2008; the Multi-annual Action Plan (2008) and The Sugar Areas Development Programmes (2008).

  23. JCS II 2006-2020 • The JCS II 2006-2020 was approved by Cabinet on 7th September 2009 by Cabinet. • Preparation and approval of the JCS II paved the way for more positive assessments by the EU. • However all EU budget support was suspended in FY 2009/10 pending a successful outcome of the negotiations with the IMF.

  24. At the end of May 2010, of the total amount allocated to Jamaica, €23.6 million has been disbursed to the country. Basedon positive assessments by the EU, under JCS II, an additional amount of €20.685 million is currently being processed by the EU and is expected to be disbursed to the Consolidated Fund before the end of June 2010, bringing the total to €44.285 million (about J$5.1 billion).

  25. Progress in Implementation of JCS Despite delays encountered to date, primarily as a result of privatization, some progress has been made

  26. Objective 1(Develop a sustainable private sector led sugar cane industry) • the settlement of land tenure issues on the public estate lands; • the payment of severance and redundancy payments to all former SCJ workers • the establishment of an operational cane expansion fund for productivity improvement; • on-going senior level discussions on the nature of any future regulatory framework; • the introduction and mandating of E10 (10% blended ethanol gasoline) across the country;

  27. Objective 1(Develop a sustainable private sector led sugar cane industry)cont’d. • a general policy and regulatory framework for the development of renewables, including the adoption of the Energy Green Paper and specific regulations that provide incentives for the production of electricity from renewable sources ; • the privatisation of two of the public estates (Long Pond and Duckenfield); and • the restructuring of SCJ Holding that for the first time will not drain public resources for recurrent expenditure as it is expected to breakeven in FY 2009/2010.

  28. Objective 2 (Strengthen the economic diversification, social resilience and environmental sustainability of sugar dependent areas): • reinforcement of the Sugar Transformation Unit (STU), both within MoA and on the SCJ estates, with staff increased to 31 people; • registration and survey of the workforce having been declared redundant; • hiring of livelihood advisors and counselling services for redundant workers;

  29. Objective 2 (Strengthen the economic diversification, social resilience and environmental sustainability of sugar dependent areas) cont’d : • the introduction of re-housing schemes for those previously living in the estate barracks; • making arrangements for continued social services and utilities provision; and • the introduction of a mechanism for funding diversification schemes.

  30. Challenges going forward • Protracted privatization process • Possibility of budgetary shortfall to implement all activities.

  31. END

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