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Prices and Climate among Challenges for Sugar
Guatemala’s sugar industry faces challenges that include weak world sugar prices, social unrest, and climate change. According to Grupo Pantaleón CEO Diego Herrera, however, the increasing global demand for sugar, modern agricultural practices, and ef- ficient milling will ensure that the Guatemalan industry continues to flourish in the long term.
Straddling the Central American isthmus and nour- ished by rich volcanic soil, Guatemala has become an agricultural powerhouse. The nation’s easy access to the lucrative markets of the Western Hemisphere,
plus a stable currency and a steady economic growth rate, enhances its ability to remain viable in a globally cutthroat industry. Important choices for the industry’s future lie ahead, however.
CAREFUL MARKET DECISIONS
Guatemala’s sugar industry is one of the most important components of the country’s agricultural sector, producing significant export revenues. The worldwide demand for sugar is expanding at a rate of about 2 percent annually, al- though not uniformly. For example, the current per capita sugar consumption in Africa and Asia is relatively low, so those markets are growing faster than the global average. Much of Guatemala’s excess production goes to Africa and Asia, rather than to the United States and Mexico, where prices are higher but access for Guatemalan producers is limited by a quota system.
Guatemalan producers sell about 70 percent of their sug- ar production in the world market, making earnings highly volatile. As a result, the industry undergoes constant efforts to improve access to higher-paying markets. One way this is achieved is through free trade agreements, such as the Cen- tral America Free Trade Agreement with the United States or the European Free Trade Agreement. However new quota allocations are generally small because local markets remain highly protected.
SOCIAL CONDITIONS . . .
One threat to Guatemala’s sugar industry is social unrest. Diego Herrera, CEO of sugar producer Grupo Pantaleón, points out that “it’s a concern. Guatemala has a big social imbalance. It’s a wealthy country, but unfortunately, wealth is very poorly distributed.” For example, in the highlands, where the population is largely indigenous, a very small por- tion of taxes paid by hydroelectric power plants flows back to the people, who in turn see little benefit beyond the wages paid to those who work in the hydro plants. The resulting situation is tension between local communities and project developers, which creates uncertainty and risk.
While the disproportionate distribution of wealth is a le- gitimate root cause for some of the social unrest, one cannot ignore the role played by non-governmental organizations (NGOs) operating in Guatemala. While many NGOs come to Guatemala to help with real problems, some focus on manip- ulating public opinion and making problems appear worse. “It’s a bit of a catch-22,” Herrera says. However, he argues, “the real solution does not lie in fighting the NGOs but
DIEGO HERRERA
CEO
GRUPO PANTALEÓN
rather in reducing poverty levels.” Many of these problems will be ameliorated or eliminated through improvements to the country’s education and healthcare systems, as well as through the creation of more rural job opportunities in other sectors, changes that should occur as the economy matures.
. . . AND ENVIRONMENTAL CHALLENGES
Climate change is a growing problem for the sugar industry in Guatemala. The fresh water available for the cane fields, for example, is no longer guaranteed. Historically, the rivers provided a sufficient and reliable supply of water through- out the growing season. Now, the rivers decline noticeably around the end of February or early March, well in advance of the usual mid-May harvest time. Aggravating the prob- lem, rains have been less regular than they were in the past, and even the number of days of sunlight has decreased.
One obvious approach to the water problem is to create reliable systems for water storage and irrigation. But even if irrigation can water the fields, if the overall water sup- ply declines, it is likely that crop yields—generally very good over the past few years—will suffer. As a response, the sug- ar industry has developed the Private Institute of Climate Change (ICC), which manages watersheds, researches and assesses potential climate change, monitors key ecosystems, and evaluates the vulnerability of communities to ecological disaster.
Herrera asserts that Guatemala offers “a great opportuni- ty” with its demographics, especially the flourishing middle class, but he points out that all countries have their econom- ic ups and downs. The main lesson for agricultural compa- nies, he believes, is diversification. “If you diversify your presence, you will substantially reduce your risk. It’s very important to have a multi-country footprint in order to avoid having all your eggs in one basket.”
Guatemala ranked sixth in the world with its 2014 sugar exports of 1.95 million metric tons.
INTERVIEW: GRUPO PANTALEÓN
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