The Impact of Globalization on the Caribbean Sugar and Banana Industries.

Government 2302.

25th March 2004

Globalization is the growing integration of economics and societies around the world. The process of Globalization has touched every aspect of Caribbean life including the agricultural sector. Sugar and bananas are two most important foreign exchange earners and sources of employment in several Caribbean countries. These crops share a common history and a common future. They also face similar challenges due to Globalization. Presently the cost of production of sugar and bananas is three times higher than the world’s market price. This is compensated by the higher preferential marketing prices of the sugar and Banana Protocols under the Lome Convention. The Lome Convention is an Agreement signed in June 2000, which guarantees both the export and amount and prices until 2008, after which the Caribbean sugar and banana industries are expected to face the full impact of globalization.

Currently, the challenges faced by the sugar and banana industries from globalization are a result of lack of increased production and productivity, continued labor problems and its high cost, slow pace of crop diversification, few value added products developed, higher cost of inputs resulting from currency liberalization, low levels of technology used in the production systems, and inadequate research and development support. The countries involved should aim at addressing the above problems soon.

For Sugar, one of the largest earners of foreign exchange in the Caribbean, the impact was not felt immediately as the industry enjoys the protection of preferential marketing arrangements under the Sugar Lome Convention, which guarantees this until 2008 after which the Caribbean Sugar industry will face the full impact of globalization. In the meantime, the cost of production of sugar has also increased.

The banana industry, which is the lifeline of the four Windward Islands, Dominica, St.Vincent and the Grenadines, Grenada and St.Lucia, is currently under serious treat from globalization. The industry in the Caribbean may not last very long. The problems of the banana industry are multifaceted including the economies of scale and the high cost of production.

The process of globalization in the Caribbean economy manifested itself in two ways. Firstly, the subsidies paid to food crop farmers stopped, resulting in higher prices of these products. Secondly, the import regime was liberalized causing an increased level of goods imported from abroad. The farmers were not prepared for the onslaught of globalization. However, globalization has made the farmers aware of the process of liberalization and made them to adopt new innovations to be competitive.

Caribbean countries are most vulnerable to the globalization process since their limited physical size does not allow them to enjoy economies of scale. This translates into higher than world prices for production of its principal products such as such as sugar, banana, citrus, coffee, spices and other fruits. Due to liberalization of the exchange market, the Jamaican, Guyanese and the Trinidad and Tobago dollar depreciated against major world currencies. Consequently, the price of inputs went up, resulting in higher costs of production. Of the important global changes, the most significant one to adversely impact the Caribbean is the possible end of preferential treatment. Currently, sugar and bananas from the Caribbean enjoys preferential pricing arrangements in the European market under the Lome Convention.

The Sugar industry is important due to the precious foreign exchange it earns and the employment it provides for unskilled and semi-skilled people. The industry is currently under pressure from inside and outside the European union. In 1998/99, the Caribbean exported 669,630 tones of sugar earning US$338.0 million. The industry employs approximately 150,000 workers in the sector. Cost of sugar production in the Caribbean is generally high compared to the world price as well as the other efficient producers. This is due to the deregulated foreign exchange market resulting in increased prices of imported inputs including fertilizers, pesticides, and irrigation equipment. Globalization has impacted negatively on the price of sugar in the world market in recent years. The prices declined as producers strived to bring prices in line with the proposal for the achievement of consistent prices. The effect of trade liberalization has been felt in every sugar producing country in the Caribbean. In St. Kitts-Nevis, the 2000 crop season produced 17,639 tonnes of sugar down from 31,374 tonnes in 1997. The Jamaican