A Sugar Manufacturing Corporation of Jamaica

Item 2.3 Result to be achieved by the commissioners(vii) “Specific recommendation as to changes to the cane pricing

arrangements, if any are made”

July 16, 2010

Introduction

The SMCJ is overwhelmingly supporting the existing cane testing and payment

system.

Our position is so as the purpose of this system is expected to result in an

improvement in productivity in the sugar industry and growers and

manufacturers alike have expressed confidence in it.

Cane payment systems define one of the most important relationships of any cane

industry, since they determine how revenues are distributed between growers and

millers. Cane payment systems also play a central role in establishing the

incentives that growers and millers face. Not only do they influence heavily the

incentives to improve technical efficiency, they also have far-reaching

implications for investment decisions.

2

However the manufacturers feel the system must remain with the level ‘playing field’ it started in 1991 in the movement of funds from factories to growers and growers to factory.

This was a fair introduction to increasing efficiency to achieve incentive.

The distribution puts to rest the future policies and logistic base on the majority.

In any business the world over, it is the majority that counts for representation.

3

The Distribution1991 - 2009 (inclusive)

Tonnes Cane total = 40.121 M 100%

Tonnes Cane - Farmers = 19.458 M 48.49%

Tonnes Cane - Estate = 20.663 M 51.51%

Sugar Produced 3.629 Million tonnes

Value of Sugar B $78.202 = 100%

Factory share sugar B $28.888 = 36.94%

Estate cane (estimated value) B $25.371 = 32.48%

Subtotal = (manufacturer) B $ 54.265 = 69.42%

Farmers Cane (estimated value) B $ 23.937 = 30.58%

4

Types of Cane Payments Systems

• The number and different type of cane payment systems in existence are an

indication that there is no single formula for an efficient and effective cane

payment system

• (Table1). However, payment systems used to divide revenue between growers and

millers can be separated into two broad groups.

• Fixed cane price systems

• Revenue sharing systems

• These systems can be divided into two main types:

• Fixed revenue sharing

• Variable revenue sharing

5

Table 1. Summary of revenue sharing arrangements

Cane Industries Cane payment system Revenue share base on revenue from:

Australia

Brazil

Colombia

Fiji

Jamaica

India

Maharashtra

Uttar Pradesh

Tamil Nadu

Mexico

Philipines

South Africa

Thailand

USA

Louisiana / Florida

Hawaii

China

Vietnam

Revenue sharing

Revenue sharing

Revenue sharing

Revenue sharing

Revenue sharing

Co-operative

Fixed price (flat rate)

Fixed price2

Revenue sharing

Revenue sharing

Revenue sharing

Revenue sharing

Revenue sharing

Integrate growers/ Millers



Raw sugar (Millers retain molasses)

Cristal1 sugar and ethanol

Raw/ Mill white sugar (Millers retain molasses)

Sugar and other by-products

Sugar and other by-products

Sugar and molasses

n.a.

n.a.

Sugar (millers retain molasses)

Raw sugar and molasses

Raw/ refined3 sugar and molasses

Raw/ white/ refined4 sugar and molasses

Raw sugar and molasses

n.a.

n.a.

n.a.

Notes: 1. Cristal sugar is a very high polarity raw sugar produced by the Brazilian sugar industry. 2. Growers receive quality premium based on sugar yield per tonne cane. 3. Growers share in only part of the premium earned from exports of refined sugar. 4. Growers share in only part of the premium earned from exports of white and refined sugar.

6

INCENTIVES TO IMPROVE THE CANE QUALITY AND SUCROSE RECOVERY

Table 2 shows the extent to which each country’s cane payment system rewards growers and millers (as a group) for improvements in cane quality and factory efficiency. The table presents estimates of the percentage change in growers’ revenue that result from 10% increase in cane sucrose content. The equivalent figure for millers showing the effect of a 10% increase in factory sucrose recovery is also presented.

7

Systems based on the average quality of growers’ cane

Cane payment systems that are based on the average quality of cane delivered to a

mill by all growers provide little incentive for individual growers to improve cane

quality. For example, a cane grower who produces cane with a high sucrose

content will only receive payment based on the average quality of all the cane

delivered to the mill.

Consequently, the grower is unable to influence the price received for his cane,

and has no financial incentive to produce cane of higher quality.

8

JAMAICA’S CANE PAYMENT SYSTEM

• Cane analysis based on the core sampling method

• Required to test at least 50% of all deliveries

• Price/ tonne cane is based on the all suppliers average cane quality

• Cane quality is determined by measuring The Jamaican Recoverable

Cane Sugar (JRCS) content in canes delivered within 72 hours after

burning or cutting

9

SAMPLING

• Approximately a 7kg sample is taken by a rotating diagonal Core Tube

• For canes transported in a tandem of carts samples are taken as follows:

- One to three carts - all should sampled

- Four to six carts - a minimum of three should be sampled

- Seven to eight carts - a minimum of four should be sampled

- One sample is taken from trucks typically weighing 10 - 15 tonnes.

10

JRCS DETERMINATION

• Samples are shredded to obtain a cell breakage of not less than 80%

• Sub-samples of 1kg is weighed on an electronic balance for processing

• The juice is extracted by a hydraulic press at 3000 psi for two

minutes

• The press residue (bagasse) is analyzed for Fibre% Cane

• The extracted juice is analyzed for brix, pol, purity and sediments

11

CANE PAYMENT FORMULA

● Cost-Based System

● Aim: To Attain an Equitable Distribution of Sugar Revenue

● Principles:

(1) Revenues should be divided in proportion to the costs involved in

producing and processing a tonne of cane

(2) The revenue should be determined on the basis of the recoverable

sugar in cane.

(3) The main factors which influence the payment of sugar from cane are:

- Standard Cane Quality

- Standard Factory Efficiency

12

FACTORY OPERATIONS

Since the implementation of the new system, the indicator of efficiency has been the

Factory Recovery Index. This is based on the actual sugar produced expressed as a

percentage of that predicted.

Predicted sugar is calculated from a structured formula, partly scientific with

standards set for losses in:-

Milling - Bagasse pol loss = 5% (reduced pol extraction 95 at 12.5%F)

Processing - Filter cake pol loss, 0.60% of cane

- Undetermined pol losses (physical and chemical) 1.3% of cane and

- Final molasses pol loss, W & C formula modified (1.45 - 45/Q).13

DETERMINATION OF POL % CANE & JRCS

Data Obtained From at the Core Laboratory. Eg.

- Pol % Press Juice = P = 13.92

- Fibre % Cane = F = 14.86

- Press Juice Purity = Q= 82.81

Pol % Cane = P (1.02 - 0.44 f/100) (1.0 - f/100) = 11.31

JRCS = 1.03P (1.02 - 1.73 f/100) (1.45 - 45/Q) = 9.92

14

The Cane Payment Formula and the Core Sampling Method of testing introduced in

1991, have brought about many positives in managing and stabilizing the Sugar

Industry.

Firstly, up to 100% of grower’s cane can be tested.

Secondly, the Payment Method has brought about a more equitable distribution of

the proceeds from sugar between the growers and the manufacturers.

Thirdly, Cane Payment is based on the sugar in cane tested at the Core independent

of factory operation. The amount of sugar in cane is expressed as the Jamaica

Recoverable Cane Sugar (JRCS) or sugar percent cane.

15

JRCS Measures directly the amount of sugar in a given quantity of cane. The

higher the JRCS, the better the quality A JRCS of 10 indicates a quality better

than a JRCS of 8.

JRCS to tonnes of cane per tonne of sugar

13.00 High 7.7

12.00 8.3

10.00 10.0

8.00 Low 12.5

The tc/ts gives the ratio or the amount of cane required to make 1 tonne sugar.

The lower the tc/ts ratio, the higher the quality. JRCS therefore, is now the

important measure of quality on which the cane payment is based.

16


V = P x FRI/100 (Average JRCS– FF) + BYP

V 1 = P x FRI/100 (Average JRCS x RF) – FF) + BYP

● V = Average Price/Tonne Cane at the respective factory

● V 1 = Individual Payment at each respective factory

● P = Price/Tonne Sugar

● FRI = The standard factory efficiency on which payment is based

● JRCS = All growers’ average recoverable sugar in cane

● FF = Factory fraction - The fixed number of Units of recoverable

sugar of the standard cane quality to be retained by the factory

● BYP = Value per tonne cane for by-products 17

STANDARD CANE QUALITY

◘ Derived from the Moving Weighted Crop Average JRCS of All Factories

◘ A new value is calculated each year based on the last five years results

◘ Annual Factory Fraction Represents 38% Of the Standard Cane Quality (JRCS)

18

Commission Report 4.32The Factory Fraction

Total revenue for 1987 for 7 estates as per 4.3 $ 478,597,00Total tons sugar for 1987 for 7 estates as per 4.3 176,409Total Revenue per ton sugar = $ 478,597,00 = $ 2,713 176,409Cane growers/ farmers share of 62% = $ 1,6821987 average TC/TS = 10.441987 price per ton cane = $ 1,682 10.44 = $ 161,111987 average JRCS = 100(assuming percent sugar 10.44 = 9.58is the inverse of TC/TS)Therefore - Price per ton cane of $ 161.11 = 0.0091 x $ 2,713 (9.58 - fixed fraction) ( 161.11 ) (0.0091 x $2,713) = (9.58 - fixed fraction) 6.526 (68.12%) = (9.58 - fixed fraction)

= 3.054 = 31.88%

Since 9.58 is at .91FRI then the JRCS reported = 9.58/.91 = 10.5274Price = 2713 x .0091 x (10.5274 - 3.054) = $ 184.57Therefore it should be 2713 x .0091 (10.5274 - 4.0004) = 161.14

19

COMPARISON OF VARIATION IN PRICE/ TONNE CANE AND SHARE OF PROCEEDS DUE TO VARYING EFFICIENCY

CASE 1 2 3 4 5 6

JRCS 10.1667 8.2500 12.0000 10.1667 10.1667 12.00

FRI (ACHIEVED) 91.00 91.00 91.000 95.00 87.00 99.52

PRICE/ T ($) 573.61 399.19 740.44 573.61 573.61 740.44

GROWERS SHARE (%) 62.00 53.17 67.81 59.39 64.85 62.00

FACTORY SHARE (%) 38.00 46.83 32.19 40.61 35.15 38.00

This demonstrates the challenges to both growers and manufacturers to maintaining not only their standard sharing but to exceed for incentives.

20

CANE PRICE AS A FUNCTION OF QUALITY (JRCS)

ESTIMATED SUGAR PRICE - $36,000.00/T

STANDARD CANE QUALITY 10.0422 FACTORY FRACTION 3.8160

PRICE/TONNE = $2037.70 STANDARD

TARGET

JRCS 10.2 10.3 10.4 10.50 10.6 10.7 10.8

F.F 3.8160 3.8160 3.8160 3.8160 3.8160 3.8160 3.8160

PRICE/ T $ 2091.37 2124.14 2156.91 2189.68 2222.45 2255.22 2287.99

DIFF FROM TARGET $

(98.31) (65.54) (32.77) NIL 32.77 65.54 98.31

This demonstrates the value of one tenth (1/10) of one JRCS that is gained or lost by a grower.

21

$36000.0 X .0091 (JRCS - FF) Standard JRCS = 10.0447

= $36000.0 x 0.0091 (10.0447 – 3.8170) Growers Fraction = 6.2277

= 327.60 x (JRCS – 3.8170)

WORTHY PARK 11.14 - 3.817 = 7.323 X 327.6 = 2,399.01

LONG POND 10.51 - 3.817 = 6.693 X 327.6 = 2,192.62

MONYMUSK 10.11 - 3.817 = 6.293 X 327.6 = 2,061.58

BERNARD LODGE 10.04 - 3.817 = 6.223 X 327.6 = 2,038.65

FROME 9.65 - 3.817 = 5.833 X 327.6 = 1,910.89

APPLETON 9.55 -3.817 = 5.733 X 327.6 = 1,878.13

ST. THOMAS 8.90 - 3.817 = 5.083 X 327.6 = 1,665.19

ISLAND AVERAGE 9.89 - 3.817 = 6.073 X 327.6 = 1,989.51


In this example the fixed factory fraction is demonstrated and shows the incentive to be gained from improved cane quality.Note the difference between Worthy Park and St. Thomas then St. Thomas to the island average.

22

LEVELING THE PLAYING FIELD

COMPARISION TO THE OLD SYSTEM WITH THE NEW FOR THE 1990/91 CROP

FACTORY % SHARE

FACTORY DIFF. IN PRICE/TCTO SUPPLIER

FACTORY EFFICIENCY*

OLD NEW

FROME + 10.90 82.02 36.29 3327

MONYMUSK + 19.78 81.52 34.91 29.78

PETRONOL + 4.83 86.17 36.15 34.93

LONG POND + 9.54 86.14 33.46 30.89

TROPICANA - 22.92 89.19 37.83 44.56

NEW YARMOUTH - 10.29 91.52 36.55 39.03

APPLETON - 15.59 92.63 36.21 39.94

WORTHY PARK + 19.09 96.64 39.84 36.21

HAMPDEN + 35.73 76.84 35.00 25.26

AVERAGE + 7.15 85.14 36.25 34.41

The Standard Factory Efficiency in 1991 was 90.5. As a result of the new system growers earned a net $19.47M FROM ALL FACTORIES, while three manufacturers earned $10.70M and six paid out an additional $30.17M 23

ALL ISLAND GROWERS -ANALYSING THE CANE PAYMENT SYSTEM BASE ON RECORDS

ANNUAL JRCS% ANNUAL CHANGE YEAR PRICE/T

SUGARSTD

PRICE/TC

AVERAGE % CHANGE

ACTUALPRICE PAID

PRICE/TC PRICE/TS

1991 4500.00 258.15 10.1577 N.A. $257.75 N.A. N.A.

1992 9500.00 546.91 10.2192 .61 $549.75 113.29 111.11

1993 11403.00 633.27 9.6500 (5.57) $600.12 9.16 20.00

1994 14825.00 830.94 9.8704 2.28 $816.52 36.06 30.00

1995 18100.00 1024.63 10.0429 1.75 $1029.72 26.11 22.09

1996 20546.00 1144.68 9.8166 (2.25) $1127.02 9.45 13.51

1997 17190.00 993.19 10.4914 6.87 $1052.84 (6.58) (16.33)

1998 16670.00 895.11 9.2871 (9.53) $835.68 (20.63) (3.12)

1999 19098.00 1042.93 9.5167 2.47 $1000.99 19.78 14.57

2000 19107.00 1140.51 11.2159 17.85 $1300.04 29.88 0.05

2001 18697.00 1063.03 10.0994 (9.95) $1069.08 (17.77) (5.12)

2002 19300.00 1100.71 10.0454 (0.53) $1094.07 2.34 3.23

2003 27500.00 1523.39 9.5682 (4.75) $1442.26 31.83 42.4

2004 31387.00 1841.79 10.6242 11.04 $1939.45 34.47 14.13

2005 32204.00 1925.33 10.4606 (1.50) $1946.83 0.38 2.6

2006 36842.44 2079.59 9.9173 (5.19) $2031.69 4.36 14.4

2007 38744.02 2147.37 9.6901 (2.29) $2056.45 12.18 5.16

2008 44500.24 2497.73 9.9703 2.89 $2480.44 20.62 14.86

2009 46416.62 2796.85 11.1141 11.47 $3070.40 23.79 4.32

Avg 21549.34 1220.35 9.9066 $1193.5224

This table demonstrates the movement in the price of sugar compared to the quality of cane and the price of cane which is often non-proportional to the sugar price movement. The growers often fail to achieve the standard quality that they set, resulting in significant losses.

25

APPLICATION OF THE RELATIVE FACTOR FOR INDIVIDUAL PAYMENT

V 1 = P x FRI/100 ((Average JRCS x RF) – FF) + BYP

The implementation of the “Relative Cane Payment System” for the 1972/73 crop arose out of the

concerns for the uneven deliveries of cane by growers throughout the crop. Such a system had the

desirable effect of removing the advantages of the growers who deliberately delivered canes during the

peak period of juice quality at a cost to those who delivered at the beginning and end of crop.

Such practices also had a negative impact on the factory performance of low operating time due to a

shortage of cane at the beginning and end of crop and high stocks in the peak periods.

The basis of the system was that the quality of any cane delivery is related to the factory average cane

quality for the week in which it was delivered.

It operates so that a supplier who supplies cane at the beginning of crop of a quality equal to that of the

factory average for the particular week will get the average price paid for cane at that factory for the

crop. If at the peak juice period a supplier supplies cane which is equal in quality to the factory average

for the particular week, that supplier will also be paid at the said crop average price. Better or worse

than average quality cane for the particular weeks would attract higher or lower than average

price, in the proportion by which they are better or worse than the factory average for the

particular week. 26

For example, if a farmer at the start of the crop delivers cane taking 11 tonnes of cane per tonne

of sugar, and the factory average for that week was also 11 tonnes of cane per tonne of sugar (his

Relative Factor would be 11/11 = 1.0000), he would be paid the crop average price for cane for

that factory, if his cane tested 10 tonnes per tonne of sugar, he would be paid 11/10 (a Relative

Factor of 1.1000) of the crop average price for his cane delivered for that week.

If a farmer delivers cane of 9 tonnes per tonne of sugar at the peak quality period and the factory

average for the week in which the cane was delivered is also 9 tonnes per tonne of sugar, he

would be paid for that cane at the average cane price for the factory.

If, however, his cane quality is 10 tonnes of cane per tonne of sugar, he would be paid at a rate of

9/10 (or 0.90000 Relative Factor) of the average price for cane for that factory.

27

The average Relative Factor for the crop is calculated from the Tonnes Relative Cane delivered. The Tonnes Relative Cane is calculated weekly - this is the product of tonnes cane delivered x the Relative Factor (see table below).

Week Tonnes cane supplied Supplier’s TC/TS (=A)

Factory average TC/TS (=B)

Relative Quality (B/A)

Tonnes cane x Relative Quality

1 200 11.0 10.5 0.9545 190.90

2 200 10.0 9.5 0.9500 190.00

3 50 9.0 9.0 1.0000 50.00

4 50 9.0 8.0 0.8889 44.45

5 100 10. 11.0 1.10000 110.00

Total Average

600 583.35

AVERAGE RELATIVE FACTOR = 583.35 ÷ 600 = 0.97225

Note the cane quality curve for 1999 and 2000 crop below. Farmer (a average quality grower) is

compared with farmer (an inefficient grower) compared to farmer (an efficient farmer) 28

IMPACT OF THE RELATIVE FACTOR

Farmer : R.F. 1.00 X 9.52 = 9.52 (1999)Farmer : R.F. 1.00 X 11.26 = 11.26 (2000)

Farmer : R.F. 0.92 X 9.52 = 8.76 (1999)Farmer : R.F. 0.92 X 11.26 = 10.36 (2000)

Farmer : R.F. 1.1 X 9.52 = 10.47 (1999)Farmer : R.F. 1.1 X 11.25 = 12.39 (2000) 29

Example of 2009 seasonWorthy Park average JRCS = 12.06

Highest Lowest

JRCS 15.72 6.51

R.F 1.2727 0.5279

Average Quality at time of delivery 12.35 12.33

Price at actual JRCS $ 5019.88 1124.01

Price at Relative Factor JRCS $ 4862.84 1063.30

Frome average JRCS = 11.34

Highest Lowest

JRCS 13.93 5.14

R.F 1.2726 0.4699


Price at actual JRCS $2997.63 $543.67

Price at Relative Factor JRCS $4468.63 $623.3630

Monymusk average JRCS = 10.63

Highest Lowest

JRCS 14.36 5.24

R.F 1.2157 0.5823




Long Pond average JRCS = 10.88

Highest Lowest

JRCS 13.46 5.25

R.F 1.0051 0.5322




31

St. Thomas average JRCS = 10.87

Highest Lowest

JRCS 13.91 5.87

R.F 1.1946 0.6723




Appleton average JRCS = 10.69

Highest Lowest

JRCS 13.40 7.10

R.F 1.2251 0.6300




COMPARISM OF ESTATE vs FARMERS QUALITYAppleton Factory

JRCS RELATIVE FACTOR

Estate total 10.47 0.9958

Frome Estate 10.84 1.0035

St. Elizabeth Farmers 11.21 1.0276

New Yarmouth Estate 10.59 0.9919

B/ Lodge & Clarendon 10.01 0.9887

Average 10.69 1.0000

Frome Factory


Farmers 11.14 0.9866

Estate 11.59 1.0167

33

Long Pond Factory


Farmers Total 10.49 0.9815

Estate Total 11.17 1.0139

Average 10.88 1.0000

Monymusk Factory


Farmers 11.05 1.0096

Estate 11.11 1.0399

Bernard Lodge 9.69 0.9421

Average 10.63 1.0000

34

St. Thomas Factory


Farmers 10.83 1.0009

Estate 10.91 0.9991

Duckenfield Indvl 10.59 0.9849

Serge Island Indvl 12.36 1.1033

Average 10.87 1.0000

Worthy Park Estate


Farmers 11.70 0.9690

Estate 12.65 1.0573

Hillside Farmers 11.40 0.9475

Bog Walk Farmers 11.80 0.9637

W.P./ Tulloch 12.79 1.0035

Spring Garden 10.10 0.8532

Average 12.06 1.0000 35

CROP YEAR: 1999/2000

Estate JRCSHighest

RelativeFactor

GroupNo.

JRCSLowest

RelativeFactor

GroupNo.

Span

Tropicana 14.96 1.2199 31212 7.53 0.7626 20136 7.43

Worthy Park 13.97 1.1104 00024 11.07 0.8441 00059 2.90*

Hampden 12.52 1.0878 00081 7.77 0.7633 00119 4.75*

B/ Lodge 14.52 1.3252 05406 6.84 0.6419 06610 7.68

Long Pond 13.12 1.1079 80149 7.62 0.6905 80418 5.50*

Monymusk 17.56 1.4585 04373 7.86 0.686 02115 9.70

Frome 14.14 1.1478 00282 7.24 0.7263 00673 6.90

Appleton 14.69 1.2124 01786 4.55 0.4489 01147 10.14

* These are examples of a good and acceptable span (highest to lowest). 36

GENERAL

The report of the Sugar Industry Enquiry Commission (1987/88) contained the following

recommendation (see paragraph 8.53):

“We also recommend that the Sugar Industry immediately commence a cane-

growers education programme detailing the JRCS measurement system and

the reasons for its introduction, and particularly emphasizing its aims and the

effect on the returns to growers who continue to supply poor quality cane”

The contents of the AIJCFA submission to the CPC suggests that the case for an educational

programme is at least as strong today as it was fourteen years ago. The submission makes it

clear that there remains a lack of understanding of the principles upon which the Cane

Payment System is based. This, in turn, has led to a general state of confusion on the part of

the cane farmers and their representatives.

37

As a result this unique and most brilliant system of testing and payment has failed to bring

the degree of achievement in efficiency and prosperity to a failing industry.

The strength of the Euro coupled with the devaluation of the Jamaican Dollar has not

helped as there were this satisfaction of the significant price increases although efficiency

was falling.

Scientific studies show why cane quality will decline and although this has been exposed

very little attention is given.

Example:-

SUGAR CONTENT OF COMPONENTS

COMPONENTS PERCENT SUCROSE

MATURE STALK 12 - 15

TOPS 2 - 3

SUCKERS 3 - 5

38

FACTORS AFFECTING QUALITY

•Variety

•Cane maturity

•Fertilizer programme

•Moisture supply nearing harvest

•Delay between harvesting and testing

FACTORS INFLUENCING CANE QUALITY

FRESHNESS

•Below 24 hours after kill - ideal

•48 hours - good

•Up to 72 hours - acceptable

•Over 72 hours - unacceptable

Aim to supply as much cane as possible within the first 24 hours after kill.39

DROP IN CANE PRICE DUE TO STALENESS

After cut or burn Cumulative % loss

Day 1 0

Day 2 12.3

Day 3 22.7

Day 4 39.9

Day 5 65.2

Day 6 94.1

40

FIBRE % CANE

•True cane fibre = 12 - 16% of cane weight

•Extraneous matter also classified as “fibre”

•Extraneous matter is added to true fibre

•Higher fibre = lower cane price

IMPACT OF FIBRE COMPONENTS

Components (10% of sample) Percent Price drop

Dry trash 11.7

Green leaves 7.4

Dry dirt 13.6

Tops 8.3

41

FACTORS AFFECTING PURITY

•Immature cane

•Suckers

•Tops

•Dead cane

•Stale cane

42

FACTORY RECOVERY INDEX

(FRI)

This is:

◘ The Relationship Between a Factory’s “Sugar In”

Measured in JRCS Purchased and its “Sugar Out”

Expressed as Tonnes 96º Sugar Made

Tonnes 96º Sugar Actually Produced

by Factory (including sugar equivalent

sold to distillery)

◘ FRI = _____________________________________

Tonnes Jamaican Recoverable Cane Sugar

The negative/ positive impact is demonstrated for a factory processing 300, 000 tonnes cane.

The value of one (1) FRI is $11.340 million or $ 1.134 million for 0.1FRI.

Refer to factory (A) below 43

FACTORY REVENUE AS A FUNCTION OF FACTORY RERCOVERY INDEX (FRI)

Factory “A”

FRI ‘89 ‘90 ‘91 ‘92 ‘93

T. Cane grnd 300,000 300,000 300,000 300,000 300,000

Price/ T. Sugar 36000 36000 36000 36000 36000

Crop avg. JRCS 10.50 10.50 10.50 10.50 10.50

T. sugar prod 28,035 28,350 28,665 28,980 29,295

TC/TS 10.70 10.58 10.47 10.35 10.24

Total revenue from sugar ($)

1,009,260,000 1,020,600,000 1,031,940,000 1,043,280,000 1,054,620,000

Price/ T. cane 2189.68 2189.68 2189.68 2189.68 2189.68

Total revenue to suppl. ($)

656,904,000 656,904,000 656,904,000 656,904,000 656,904,000

Suppl. Share ($) 65.09 64.36 63.66 62.97 62.29

Total revenue to factory

352,356,000 363,696,000 375,036,000 386,376,000 397,716,000

Fact. Share (%) 34.91 35.64 36.34 37.03 37.71

Fact. (loss) / Gain for FRI above/ below 91 ($)

(22,680,000) (11,340,000) 0.00 11,340,000 22,680,000

NB: STD. CANE 10.0422FF 3.8160

44

For the period 1991 to 2009 each factory existing is analyzed in accordance with the standard cane quality, standard FRI.91 and the Growers/ Manufacturers share of 62 - 38%.

Appleton

Tonnes cane received 4.683 Million

Tonnes sugar produced 430, 664.00

Average JRCS 9.9124

Revenue for cane $5.233 Billion

Average FRI 92.76

Factor share 39.68

The value of the increase factory share of 1.68 = $183.159 million.

This is due to the growers failure to achieve the standard JRCS (10.0534) costing them

$129.484 million and the major upgrading of the factory in 1998/99.

This is a good example of the intended outcome of the system with an incentive for investment and efficiency. 45

Bernard Lodge



Average JRCS 9.8903


Average FRI 89.00

Factor share 36.87

This level of inefficiencies resulted in the Growers losing of $138.012 million from poor quality in relationship to the standard (10.0534) and the factory $204.997 million, for realizing only 89.00 FRI and 36.87% of the share, this is dictated by the Payment Formula as designed.

Frome


Tonnes sugar produced 1.099668 million

Average JRCS 9.7731


Average FRI 89.21

Factor share 37.44

Similar to Bernard Lodge both sectors failed the standard (10.0534) which costed the Growers $667.232 million and the factory $119.466 million. 46

Long Pond



Average JRCS 10.2428

Revenue of cane $3.032 Billion

Average FRI 85.45

Factor share 31.94

This once more dictated by the Formula shows the Growers earning to be $95.050 million greater than the standard cane quality (10.0534) and the factory losing $270.974 million for failing the achieve 38% of the share.

Monymusk





Average FRI 89.25

Factor share 36.25

Similar to Long Pond the Monymusk Growers benefit for quality at $119.100 million while the factory lost $252.055 million for poor recovery.

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St. Thomas



Average JRCS 9.5446


Average FRI 85.01

Factor share 34.53

Both sector lost with the Growers $266.616 million and the factory $183.862 million. Even so the Growers were less efficient than the factory.

Worthy Park





Average FRI 98.44

Factor share 37.75

This is most revealing of a system, a perfect example of the challenges to supremacy for each side. The growers earned $295.00 more per tonne of cane above standard (10.0534) with a Gross of $1.119723 billion. Although this factory was so outstanding in its efforts failed by 0.25% of the standard share which cost it $35.198 million. 48

Summary

This system as explained is second to none throughout the cane industries of the world. Its scientific

development and with all due consideration given has proven it to be so.

The industry has failed to make progress and failed to be viable and profitable. This is attributable to both

sectors’ inefficiencies some more than others.

Inasmuch as the cane production has fallen to (40.121 million tonnes) less than fifty percent (50%) of its

potential and with the industry producing 3.629 million tonnes sugar earning $78.202 billion over the past

19 years it could have been much better.

This was shared: Growers = 63.06% at 9.9066 JRCS Manufacture = 36.94% at 89.87FRIThe losses estimated for unacceptable performance are:

Growers = $1.201344 billion by failing to achieving the standard they set at 10.0534

JRCS

Manufacture = $1.066552 billion for excess losses in all areas of processing

Total = $2.267896 billion

This represents 2.90% of the $78.202 billion earned over the period under review 1991 - 2009 inclusive.

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Growers Additional

Losses/ Potential Gain

JRCS

JRCS 10.50 = $ 1309.86 per tonne

Average reported 9.9066 $ 1193.53 per tonne

Difference ($ 116.34) per tonne

Value million 40.121 tonne cane B $4.667

Productivity

The average productivity 1991 – 2009

Was – Cane Harvested 40.121 million tonnes

- Area Harvested 667446 hectares

- Average JRCS 9.9066

Tones sugar per hectare 5.99

Tonnes sugar per hectare (target) 7.5

Growers actual earnings B $ 49.314

Growers potential earnings at target B $ 61.745

Difference at the average JRCS of 9.9066 is B $ 12.431 or 25.20% 50

The manufacturers have incurred massive losses in:

A. Sugar loss in cane yard 44824 tonnes valued at M $ 965.912 above 4% at which this loss is calculated. Due to cane yard management but primarily to washing dirty cane .

Loss of sugar in washing whole stick cane is at 4lb per tonne and 8lb per tonne for chopped cane. There is no allowance for such losses in the JRCS formula.

B. Milling – it is estimated that the loss of sugar was 45.446 tonnes valued at M $ 979.315 for losses in excess of the standard set.

C. Excess loss of sugar in molasses at 59052.0 tonnes valued at B $ 1.273 from which the growers got 62% or M $ 788.964 a double payment.

D. Baggasse/ oil consumption

Year L/T.S. Tonnes Sugar Volume used

2009 64.97 125,818.0 8.174 million litre

2004 43.24 183,867.0 7.950 million litre

1999 64.95 204,633.0 13.290 million litre

1997 48.41 236,512.0 11.450 million litre

1994 79.26 220,856.0 17.505 million litre51

E. COST FOR FACTORY DOWN TIME – OUT OF CANE

Long Pond St. Thomas Worthy Park Frome Appleton Monymusk

Number of

Days 2009 7.5 6.72 28.45 4.43 1.89 1.06

The system has not failed us we failed ourselves. The only change to the system may be the fixed sharing of proceed which now stands at Growers 62%, Manufacturers 38%. Such a change is mandatory upon the review of the actual costs of production from audited accounts that is long overdue.

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Documents

A Sugar Manufacturing Corporation of Jamaica