COUNTRY PROJECT Presentation : Jamaica

1. COUNTRY PROJECT Presentation: Jamaica IntegratedAssessment of Trade-RelatedPolicies in the Agriculture Sector and BiologicalDiversity Geneva, 1-3 July 2008

2. Objective of the assessment Overall objectives: • To field-test the UNEP IA manual • To develop policy options for the future of Jamaica’s sugar industry • To enhance national capacity to assess the environmental, social and economic impacts of changes in policy, in particular agricultural and trade policies, with an emphasis on the protection of biological diversity. The problem: • Jamaica’s sugar industry is the largest sector of agriculture, but internationally uncompetitive, and therefore now threatened by the loss of trade preferences. But there are different possible solutions.

3. Focus of the assessment Focus of the project • The social, economic and environmental costs and benefits of the sugar industry in Jamaica before, during and after the phasing-out of trade preferences. • Identifying the main possible future scenarios, with an emphasis on identifying the implications for biodiversity.

4. Current position “The state-owned Sugar Company of Jamaica loses more than $1 billion a year and now has accumulated losses of around $18 billion.” Jamaica Gleaner 29th April 2008 • For comparison: • Total government expenditure on housing 2008/9: $17.7 billion • Total government expenditure on health 2008/9: $21 billion

5. Diagnosis “Jamaica’s sugar industry has costs of production that are among the highest within ACP countries…factors include low land productivity, low cane quality and high content of extraneous matter, inefficient field and factory operations, high transportation costs, weaknesses in administration and management structures, low capacity utilization and maintenance in factories, and the loss of time due to mechanical breakdowns at the mills and interruptions of cane supply.” Planning Institute of Jamaica, 2007 • How did this arise? • Trade preferences shielded industry from competition • Government ownership meant industry used to absorb unemployment

6. A long tradition of industry studies • (We recommend) the substitution of other tropical products for sugar cane. • British Sugar Commission Report on Jamaica, 1897. • This was the first in a long series of studies and reports on the Jamaican sugar industry, most of whose recommendations have been largely ignored by successive administrations.

7. Conceptual framework Driving force: phase-out of trade preferences. Economic and social impacts: loss of €24 million per annum in f/x export earnings by 2010; cumulative total of €184 million by 2015. Closure of inefficient cane farms, loss of employment, producer and household income, reductions in the purchases of goods and services, loss of government revenue. Changes in incentives: end of preferences, loss-making industry; now plus rising cost of energy and food - driving current government policy; divestment and diversification into ethanol. Changes in environmental impacts: largely depends on outcome of divestment plan.

8. Influence diagram Changes in international trade agreement (tariffs & quotas) Other national to local drivers of change in agriculture & land use (Policies, laws, economy, demography, culture, infrastructure, land availability, farm type, etc.) Changes in national prices of agricultural products Choice of crops, extent & intensity of farming Income of farmers Status of PAs & other areas of biodiversity importance Rural employment Agricultural production Non-farming livelihoods Area & fragmentation of land in natural state & modified as agro-ecosystems Poverty & well-being Ecosystem services Biodiversity economic social environmental

9. Methodology Baseline for the analysis of impacts: pre & post 1st January 2008. The main indicators: economic (f/x flows, aid substituted), social (poverty and HDI), environmental (environmental indicators, as available). Policy scenarios: 3 scenarios developed.

10. Data sources Key data sources: • Macroeconomic and social/poverty data from the Planning Institute of Jamaica, World Bank, Inter-American Development Bank • Policy documents, consultancy reports and technical assessments from the European Commission, the Government of Jamaica and the Caribbean Regional Negotiating Machinery • Elite interviews with policy-makers • Secondary research on environmental/biodiversity impacts • Advisory Committee • Stakeholder workshop

11. Results There were some unexpected findings....

12. The cost of sugar • Discharge of plant matter and sludge/silt; the BOD affects freshwater streams, the sediment reduces light penetration and affects spawning grounds, mangroves, suffocates coral reefs and seagrass beds. • Contamination of surface and groundwater by fertilizers, insecticides, herbicides, fungicides, nematocides and ripeners, some bio-accumulate. • Soil compaction, loss of organic matter content • Impacts from milling and processing include: • Wastewater from three areas; the water used to wash cane (from 3 to 10 cubic metres of water is needed to wash 1 tonne of cane), the water from the boiler house used to concentrate the sugar, and the wash-water needed to clean the equipment. • Emissions include flue gases, soot and ash, ammonia is released during the concentration process. • But main biodiversity loss is incurred during primary clearance of land for cultivation

13. Possible future scenarios Plan succeeds 14-16k ha (of 46k ha) of sugar cane switched to ethanol, output doubled to 300,000 tons, add 13k ha. • US policies on tariff barriers and CBI continued post-2009 • Oil price remains high -ve for environment Current diversification and ethanol plan +ve or -ve for environment • US policies on tariff barriers and CBI discontinued post-2009 • Oil price falls • Other farming • Housing • Tourism Plan fails Land comes out of cane Industry contracts, becomes competitive

14. Summary of scenarios Both current diversification and ethanol project succeed. Increase in land utilized for cane production. Environmental consequences include increased silt discharge, but offset by contribution to mitigating climate change. Later options include a transition into cellulosic production, which could use high-fibre cane or coppiced trees, thus allowing land to be reafforested. Diversification plan does not succeed, industry collapses. Land becomes available for other agriculture, housing, tourism or forestry. If food prices remain high, more land into agriculture. If food prices fall, part of the land abandoned and reverts to scrub. Reduction in EU subsidies forces inefficient farmers out of sugar, but efficient producers modernize, mechanize, acquire land and expand production. Sugar industry becomes competitive.

15. Scenario 1: outcomes and impacts Scenario 1: Divestment and ethanol plans succeed. • Economic impact: Positive. End of domestic subsidies, reduction in import costs. • Social impact: Low skilled jobs lost (inevitable), more jobs created, overall positive. • Environmental impact: Negative locally; expansion of industry impacts inland & coastal waters and reefs. Small positive contribution globally, tiny mitigation of climate change. • Biodiversity and associated ecosystem services: locally negative.

16. Scenario 2: outcomes and impacts Scenario 2: the plans fail • Economic impact: negative, loss of f/x • Social impact: negative, rise in unemployment, 10% of 30,000 = 3,000 unemployable. • Environmental impact: land available for other uses, some reverts to scrub, impact depends on outcome, but no primary intrusion. • Biodiversity and associated ecosystem services: reduced impact on inland waterways, coastal waters and reefs.

17. Scenario 3: outcomes and impacts Scenario 3: industry becomes smaller and competitive. • Economic impact: positive, no further domestic subsidy or use of aid. • Social impact: rise in unemployment; labour would be shed from the high-cost (public) estates. • Environmental impact: positive; concentration of production on most efficient estates would allow some land to be diverted to other uses with lower environmental impact. • Biodiversity and associated ecosystem services: positive, for same reasons.

18. Stakeholder assessment of impacts Economic: f/x down, but by relatively modest amount, and largely offset by increased development assistance. Projected loss of €24 million p.a. by 2010 is just ~1.5% of revenue from tourism. Social: minor. rhetoric implies the closure will lead to large-scale layoffs of unskilled field-hands. But less than 10% of industry employees are field workers, so relatively few unemployable elsewhere, fate depends more on general economy. Distribution of impact: rhetoric implies small farmers will be driven out. But some small farms more efficient than large. Environmental: could be positive or negative, depends on whether divestment and ethanol plans succeed. Maximum expected increase (13k ha) to 300k tons is still less than peak (500k tons) Trade: industry given quota-free, duty-free access to EU markets, reasonably satisfied.

19. The future trading relationship The EU has committed to removing all export subsidies from 2013, but there have been some important changes in the post-EPA discussions. The EU will be significantly increasing the development funding to Jamaica and the Caribbean. Under the former regime, Jamaica had two important advantages; a quota (a tonnage that the EU was committed to buy) and preferential prices, which were sometimes as much as three times the world market price. Under the new regime, Jamaica has quota-free and duty-free access to the EU market. This still gives Jamaica an advantage, as non-ACP countries will have to pay duty, but Jamaica will now have to supply at competitive prices. It is for Jamaica to decide if they wish to take advantage of these market access arrangements. So the key now is the new competitive landscape, i.e. who else will have duty free access for the exportation of sugar to the EU.

20. Environment Farming that requires significant irrigation may be less sustainable than rain-fed agriculture, as water supply can be problematic in islands. Only 1/3rd of Jamaica’s cane production is irrigated, 2/3rd is not irrigated, there are only a few alternatives that can be grown in these areas without irrigation, so cane may be more sustainable than some possible alternative crops that would require irrigation. Sugar cane production requires much less pesticide than e.g. wheat, corn, cassava. Sugar was introduced to Jamaica in 1493; Jamaica’s sugar industry is not a driver of deforestation. There is as much cultivatable idle land as there are lands in sugar production, so there could be an increase in food production or forestry without reducing the amount of land which is allocated to sugar production.

21. Energy Sugar farmers are specialized, and reluctant to diversify. And farmers will not make any change unless they can maintain their incomes. However, income from sugar cane production could be increased by 30% by switching from raw sugar to ethanol production at current prices for both products. And it might not be necessary to change the current cane varieties. There are concerns in Europe about the use of banned or potentially hazardous substances such as MTBE; ethanol is therefore a preferable octane booster. If there is an evolution in future from sugar to cellulose industry could switch from high sugar to high fibre cane, and use some of the same equipment and plant.

22. Feedback: many studies, little action • Positive • Political leaders are sometimes incompetent, partisan or irrational; there is a clear need for relevant research to inform decisions. • If there is no system of assessing the assessment then we won’t learn. The process should be continuous. It is important that the lessons learnt are incorporated in the next round of assessment. • It is crucial to clearly identify the overall policy goal, is it primarily economic or are there other non-economic factors? • It is important to decide what we want to do, and not just let these decisions be made for us. • Negative • Major decisions about the privatization of the industry must be taken soon; these will be taken with no input from this study. • The EU is currently sponsoring (yet) another concurrent study to assist the industry in making decisions. So there is an obvious need to coordinate the various different initiatives.

23. Policy recommendations 1) Continue attempt to divest industry. Reason:public ownership has been a disaster for the industry. 2) Energy crops possible alternative - but would only result in small reduction of oil imports. Reason: road transport = 19% of energy demand, ethanol replaces 10%, 10% of 19% = 1.9% (US$38-57m). Greater potential gains in efficiency – in mid-1980’s took 3.5 barrels of oil to generate US$100 of GDP, in real terms; it now takes about 5 barrels of oil; return to 80’s level generates US$600-900m in savings. 3) Undertake technology foresight study. Reason: biofuel technologies are evolving rapidly; algal or GMO bacterial biofuel might represent radically superior technologies in future. Local ethanol industry not expected to be competitive until 2030, so timeframe is important. 4) Land-use decisions should take account of environmental impacts, especially forestry and water. Reason: Jamaica has high % degraded forest, water key issue on islands.

24. Next steps • Write penultimate draft of report and recommendations by end August 2008. • Circulate to advisory group and stakeholder group, UNEP and project network in September 2008. • Write final report by end October 2008.

25. Main challenges • Sensitive and difficult political environment. • Key data hard to get, large gaps in available information (surprising, given number of previous studies).

26. Main achievements to date • Undertaking the study in a sensitive and difficult political environment. • Accessing hard-to-get data.

27. Thank you !