Dr Marshall Hall - FileThe following is the second part of the text of the Ninth William G. Demas Memorial Lecture given by Dr Marshall Hall in Halifax, Canada, May 27, 2008, at the 38th annual meeting of the Board of Governors, Caribbean Development Bank.
Agriculture is very important to Jamaica and much of CARICOM and the current food crisis, as well as the views of many commentators, suggests that finding an alternative use for any displaced land is simple - grow food.
The estate sector has removed about 1,300 acres from bananas.
Almost all the displaced land has ended up in fallow or in that other crop now suffering from trade preference reduction - sugar cane.
When large acreage is displaced the natural desire is to find another crop that can absorb large contiguous acreage and, more important, immediately put the same workforce back to work.
Alternative crops for large contiguous acreage require both agronomic and market study before the necessary substantial investment is made.
Programmes and thought patterns geared to poverty alleviation, the view of the EU and other donor countries, do not include this kind of expenditure in their plans and initially, nor did private capital.
Large-scale vegetable production for the tourist and export market is often recommended as the alternative to crops like bananas and sugar.
LAND CONVERSION
Jamaica tried to make a change in the 1980s with imported expertise and converted a major block of then sugar lands into growing vegetables. That very costly vegetable exercise failed, the land reverted to bananas and is now back in sugar cane.
The medium and small farmer also has special rigidities that make the transition to other crops difficult. Many simply do not have title to the land they have farmed for many years and have no way to sell or use the land for collateral if they are seeking funds to diversify. In addition, the length of time for a transfer to take place, combined with high transfer taxes and stamp duties, made sale an expensive proposition.
In the budget presentation of 2008, the government in Jamaica announced that it planned to reduce these transfer taxes, indicating that they recognised that these taxes are a deterrent to the good use of land.
The other alternative use that commentators frequently recommend for land likely to be taken out of banana and sugar cane production is for biodiesel or ethanol.
INTERNATIONAL MARKETS
There is, however, a dearth of information relevant to the region on the crops that can be used for biofuels. The impact of the reduction in trade preferences touches many countries in the region.
A regional assessment of plant material, soil types, required hectarage, etc, was needed but none was forthcoming.
The rigidities inherent in finding alternative use for the land, as with labour, deterred any quick response to the expected changes in the trade regime.
Commodities, by their very nature, do not lend themselves to brand development.
There was no need to establish a brand for bananas since preference to a degree guaranteed market access and price.
The consumer, however, bought bananas and not Jamaican or Caribbean bananas. The customer will not realise that the source of bananas has changed. There was much talk about a Caribbean brand but we could not even agree on a label, let alone agree on the funding for a brand.
Recall that within Cariforum some seven countries regard bananas as important, and over 90 per cent of Cariforum bananas are sold in the United Kingdom.
DOMESTIC DEFICIENCIES
The infrastructure to support large-scale domestic agriculture is not well developed.
There are deficiencies in road transportation, refrigeration, and marketing outlets.
The existing farming community complains annually about the lack of markets for their crops during peak harvesting periods, and the hotels and supermarkets about shortages for the same foods during off-peak periods.
The encouragement and support for food production must be matched by the infrastructure development if the domestic food market is to be a genuine alternative use for sugar and banana lands.
As the tourist sector grows the demand for a complete range of locally produced foods and meats also increases.
The lack of infrastructure discourages production for the home market.
TRANSPORT LOGISTICS AND CSME
The key to regional trade development is efficient, cost-effective transportation for goods - both dry and refrigerated - and supportive trade facilitation arrangements.
In the movement of goods the region is not well served by air transportation, and only partially so by sea.
Sea transportation is particularly important for the movement of goods, and the region is totally dependent on the international lines moving goods from the North to the Caribbean.
The national development of the United States and, I believe, of Canada, also took off when the railroad facilitated the national movement of goods. The Caricom Single Market and Economy (CSME) is likely to be no different.
The CSME is not yet a fully fledged Customs Union, in that all 15 ports of entry have their own fee structure and entry requirements.
Caricom, in a World Bank Index of Logistics Performance in international trade - on a scale of one lowest to five highest - scored less than 2.5, behind Singapore, Panama, Costa Rica and the Dominican Republic.
For the CSME to be truly successful the harmonisation of these logistics costs must be addressed on a regional basis, focusing on port efficiencies and common fee structures.
World Bank staff in a study on the Asia-Pacific region concluded that trade facilitation improvements in that region could increase intra-regional trade by US$254 billion, or 21 per cent of intra-trade flows. The absolute gains to Caricom may not be as large but we would expect the gains to be substantial.
I suspect that removing these rigidities might do more for growth and development than the freeing up the movement of labour.
The present crisis in the availability and rising prices of food staples has encouraged the leaders in the region to think again about the CSME and food production.
We may be able to grow the food, but without cost-effective transportation, trade facilitation and refrigeration there will be no significant regional food industry.
CAPITAL
Fixed assets in bananas are very dedicated - pack houses, cableways and irrigation that conform to the layout of the farm - are all banana specific.
The plant, other than general farm equipment, is of little value outside of bananas, hence the initial response to change is always negative.
The unavailability of cheap loan funds is often put forward as one of the main reasons why the transition process is slow and difficult.
The rigidities detailed above, however, suggest that the lack of funds is not the main culprit.
Sugar and banana production in Jamaica has fared badly over the last several years, and the parishes in which they have been traditionally the main employers are among the poorest in the country.
A major alternative income flow for them and the entire country has been the remittance business.
The Inter-American Development Bank has estimated remittances to Jamaica at US$1.975 billion in 2007. They now exceed the re- venues of both sugar and bananas combined, and are larger than either tourism or bauxite, Jamaica's traditional important foreign exchange earners.
Remittances are now so large and so important to the Caribbean that we feel compelled to analyse it in the context of trade liberalisation.
A June 2007 CIDA study, 'Caribbean Community Strategic Programming Framework', commented as follows:
rate of emigration
"The Caribbean Community has the highest rate of emigration in the world (a regional average of about 35 per cent of the labour force has migrated to OECD countries since 1965). Many people who leave are well educated. On average, 73 per cent of college/university graduates left the region in the period since independence, but the figures are over 80 per cent in the case of Jamaica, Guyana, St Vincent and the Grenadines, Grenada and Haiti."
As a percentage of GDP, remittances amounted to 43 per cent for Guyana, 35 per cent for Haiti and 18 per cent for Jamaica, and except for Trinidad and Tobago at one per cent, it was important in all the other countries, according to the IDB's 'Remittances to Latin America and the Caribbean 2007'.
The push towards total trade liberalisation is, in a sense, designed for outsourcing, as while the key trade facilitation institution, the World Trade Organisation, allows and actively supports the free movement of capital, there is no corresponding support for the free movement of labour.
CARICOM's proximity to North America, both physical and cultural, was thought to make us a preferred country for outsourcing.
This has happened only indirectly as our nationals have emigrated to the jobs rather than wait for the jobs to come to the region.
THE JP EXPERIENCE
While we recognise the costs of emigration to family and loss of skills, we are obliged to ask whether the region should not make maximising remittances a formal goal, and invest in the skills wanted by the developed world and the mechanisms to maximise remittances.
Jamaica Producers, the private company that accounts for 90 per cent of Jamaica's banana exports, had for survival to make plans for life with reduced trade preferences. They concluded that:
1.Costs must be reduced.
2. Preference below a certain level meant closure.
3. Even with preference a brand or niche to obtain above commodity market prices was necessary.
4 .The importance of bananas in the company had to be reduced.
5. An exit strategy had to be formulated if the outcome of any or all of the above forced a cessation of exports.
dramatic changes
To effect the dramatic changes needed, JP concentrated production on its best banana lands and took the bold step to make the entire banana workforce redundant.
It only rehired those workers who the company felt would make the transition to a modern banana operation.
Training for all, task work pay, agreed targets per worker and modern plant and equipment were all required for the transition.
The productivity improvements were dramatic, and have been sustained, but production costs are still above those of our main competitors.
Note that it cost JP over US$1 million just to make the workers who were rehired redundant.
All told, the expenditure on redundancy alone was in excess of US$2.5 million. This expenditure would have been available to JP for important development purposes if Jamaica had proper unemployment insurance paid for by all employers.
There were, of course, other major costs of field and plant upgrading.
The productivity per worker and per acre in the lands JP left in bananas significantly increased. In part this came from investment in physical infrastructure. In large part it came from investment in people.
The Jamaican banana industry has followed the pioneering moves of the Windward Island producers into the fastest growing, highest priced niche in the worldwide banana market by achieving 'fair trade' certification.
The essence of this certification is the assurance that the crop is grown to world-class environmental and labour standards.
Bananas sold under the 'Fair Trade Brand' attract prices above bananas sold as a commodity and provides a social premium for workers to use in their communities.
JP sold its banana ripening business in the UK and today banana growing accounts for less than 10 per cent of its revenues.
In Jamaica, in addition to employing approximately 1,000 employees in banana growing, the company has opened a banana chips plant employing over 100 workers, with plans for growth.
To ensure flexibility of supply it has invested in growing and banana snack food operation in Central America.
In its UK diversification, JP benefited from grants from the EU to locate its juice establishment in Wales.
An important feature of the grant was that, although JP knew with certainty the amount of the grant before began investing, the grant only became available after JP had made the investment and operated the business for two years.
The grant was then paid out in annual tranches that required JP to be in business and operating at the time of the grant.
JP brought jobs to Wales but it had to demonstrate a degree of continuing success before the reward in the form of a grant was paid. JP now has over 600 employees in Wales.
I recommend reward for performance as a method of grant support that should be considered by governments and multilateral grant agencies.
CONCLUSION
We have focused on the special problems of reducing trade preferences in bananas to highlight the breadth and depth of problems that are likely to confront the region as trade liberalisation and globalisation expand.
The broad conclusions are that the rigidities inherent in labour, land, capital and markets act to prevent a rational and timely response to trade preference regime changes in particular, and trade liberalisation in general.
The costs associated with these rigidities should not be the exclusive responsibility of the losers, and transferring the loss of one of the losers - labour to another of the losers - the owners reduces risk taking and investment at a time when they are most needed. Markets and marketing are integral to the transformation process.
The dismantling of the rigidities at the regional level needs to be tackled and resolved if the CSME is to be a part of the solution and not a part of the problem.
If agriculture is a fundamental part of the solution, then the required infrastructure must be installed.
At the international level, the business of market preservation requires attention to market segmentation through the development of brands and the identification of niches.
The remittance experience is not trivial and may need to be encouraged as a short- to medium-term solution. It should be remembered, however, that the free movement of capital is the mantra of liberalisation, and a failure to reduce or remove the rigidities will mean that our best labour and our savings will somehow, legally or illegally, flee the region.
business@gleanerjm.com
