Can Fading Caribbean Island-States Thrive in the World of Alternative Energy?

– Does the Caribbean sugar cane industry possess the will and resources to recover from its collapse and evade all-but total catastrophe?
– Despite a number of opportunities, efforts towards orderly ethanol development in the region have been chaotic
– Can lessons from Brazil’s acclaimed ethanol program motivate foreign investors to allow the Caribbean to follow suit?

In the ongoing search for a way to reduce global dependence on crude oil, many countries are turning to alternative energy sources to satisfy their seemingly insatiable appetite for fuel. The British, for instance, are spearheading a growing movement to recycle used vegetable oil in order to power motor vehicles, yet will be restricted by inadequate resources of this nature. A far more practical option has been adopted throughout much of the tropical world, notably in Brazil.

Brazil’s thirty-year-old biofuel program is widely considered to be the pioneer in sugar cane ethanol production, and for good reason; the country created for itself the first sustainable biofuel economy in the world. The success of Latin America’s industrial behemoth in this respect would seem to presage a promising template for developing neighboring countries with once glorious and now sadly hobbled sugar cane industries. West Indian nations, in particular, appear to be ideal candidates to restore or develop biofuel industries given the significant historical role that sugar cane has played in that region. For many of these islands – such as Jamaica, Cuba, Barbados, and the Dominican Republic, including those with few other options to sustain themselves, establishing viable sugar cane ethanol programs would seem to be an achievable goal, particularly with the help of foreign direct investment (FDI). As of yet, however, such strategies have largely failed to materialize.

A Flourishing Colonial Undertaking

“You believe perhaps, gentlemen, that the production of coffee and sugar is the natural destiny of the West Indies. Two centuries ago, nature, which does not trouble herself about commerce, had planted neither sugar cane nor coffee trees there.”
–Karl Marx to the Democratic Association of Brussels in 1848

Introduced to the Americas during the epoch of European colonialism, sugar cane culture was promptly incorporated into the social and economic ethos of the Caribbean islands. As a result of growing international demand for the treasured crop, sugar cane was quickly integrated into the world market and became an extremely lucrative crop to cultivate. Many of the islands’ terrain was solely used for the production of sugar cane. For example, agricultural plots in Barbados that once yielded a range of valuable crops were soon entirely devoted to the all-encompassing sugar trade. As early as 1666, British nationals managed over 800 plantations, employing 80,000 African slaves in Barbados alone. By the end of the 17th century, the slaves working the land in Jamaica outnumbered by tenfold the white colonizers who brought them there.

Yet the immense profits arising from the Caribbean sugar cane trade could not be sustained. In due course, such inordinate investment in this example of monocultural agriculture led not only to the desertification of once fertile land, but also adversely affected the local population’s ability to provide sufficient food for their own consumption. Simultaneously, sugar processed from sucrose-rich beets was increasingly being used as sweeteners in Europe. The fact that this “nature’s candy” could be cultivated in temperate climates meant a dramatic decrease in demand for the New World cane crop. The Caribbean’s ensuing bittersweet relationship with sugar cane had taken one of its baleful turns.

The Decline of Caribbean Sugar
As a 2005 BBC report explains, “ the EU currently pays about $1.8 billion per year in support to the sugar sector, by artificially boosting the price of sugar on the European market.” In the past, European farmers that produced sugar involving beets were paid as much as three times the world price. In response to Brazilian, Australian, and Thai complaints that the EU sugar regime was anti-competitive, the World Trade Organization (WTO) deemed that the subsidies to beet growers would be illegal. In 2006, the EU introduced measures to cut the price offered to European beet farmers by 36 percent over 4 years. Yet not everyone has benefited from the reform as much as the mammoth sugar-producing countries have. Many Caribbean nations’ special trade relationships with the EU have been slashed by the changes. One example of such setbacks is the obsolescence of the Lomé Convention between the European Union (EU) and African, Caribbean, and Pacific countries (ACP). Signed in 1975, this aid and trade agreement was designed to give preferential prices to ACP agricultural crops, such as banana, being imported by the EU. ACP countries have since been able to export 1.3 million metric tons of sugar per year to the EU duty free. It is no surprise, therefore, that the Caribbean farmers have vociferously rebuked the subsidies cut.

“The margin will be too low, the price paid to cutters will be too low, and no one will work,” insisted Karl James, general manager of Jamaica Cane Products Sales Limited. “It will cripple our industry.” Furthermore, Saint Kitts and Nevis has abandoned sugar entirely and plans to diversify its exports.

Indeed, the EU price cut has severely damaged the Caribbean sugar industry and the current economic recession has further exacerbated the problem. Yet the recent decline of sugar is only part of a deeply rooted downturn in the region’s overall problem with economic competitiveness, which has come about largely as a result of the region’s geographic isolation as well as reliance on U.S., European, and increasingly Chinese aid in the Caribbean.

Another stumbling block that has prevented the Caribbean sugar trade from prospering in recent years is its inability to maintain low production costs. In 2005, Brazilian and Australian suppliers had been able to produce sugar for as low as 7 U.S. cents per pound. At the same time, production costs in Guyana were over 18 U.S. cents per pound, and 40 U.S. cents per pound in Jamaica. Prompted by overall revenue loss as a result of the EU price reductions, as well as the preeminence of sugar cane in the agricultural sector, West Indian nations have had no other option but to seek an alternative use for the nectar.

The Caribbean Dabbles in Ethanol
It is widely recognized that current worldwide energy consumption is unsustainable, and as such, we must work now to develop renewable sources. In this respect, the Caribbean nations seemingly have a momentous opportunity to transform the political, economic, and social climate in this now relatively idle region.

The case for ethanol is as exhaustive in its positive evidence as it is compelling. Paul Constance of the Inter-American Development Bank (IDB) insists that the development of a sugar cane ethanol industry provides a genuine opportunity for the Caribbean. Perhaps the most widely cited argument is that sugar cane ethanol would drastically reduce carbon emissions – an opportune prospect in an age of ubiquitous rhetoric in favor of the greening of energy independence. Also, compared to its ethanol commodification counterparts (corn, soybean, and sunflower), sugar cane, without question, consumes the least amount of water, is the most cost-effective, does not have a deleterious impact on food production, and requires far less energy to produce. And, due to the extraordinary combination of soil, climate, and available agricultural land makes the Caribbean one of the most ideal areas in the world for its cultivation. Moreover, the technology for distilling and blending sugar cane ethanol with gasoline is affordable and the basic infrastructure already exists.

As a result of initiatives set forth by China, India, and other rapidly developing nations to install ethanol-gasoline blending programs in their respective countries, there will be an enormous global market for ethanol in the coming years. For example, the Caribbean Basin Initiative (CBI), a measure established by the U.S. Congress in 1983, during the Reagan years, in order to encourage economic development within the region, could be used to establish a channel through which area nations could easily ship ethanol to the energy-hungry United States. On account of this explosive rise in demand for this product, job creation would increase considerably, especially in rural areas where unemployment is currently a matter of grave concern.

In spite of the obvious benefits, as well as the vast potential for distribution of sugar cane ethanol in the region, investments to revitalize the Caribbean sugar cane industry have been desultory up to now. With the exception of Trinidad and Tobago, all Central American and Caribbean countries are net importers of fossil fuels. Even with a potential solution to energy dependence in their own backyard, many West Indian nations, as well as foreign investors, continue to take a passive approach to what would appear to be a great opportunity.

While Cuba has never pursued a large-scale ethanol fuel program, it was once the largest exporter of sugar in the world, producing 8 million metric tons of raw sugar in 1990. Namely as a result of poor management, it only yielded 1.2 million metric tons in 2007. In spite of the country’s vast arable land holdings as well as a need to revamp its sugar industry, Havana has disregarded production of ethanol primarily for two reasons. First, Fidel opposed using sugar cane as the base of fuel because of worries that it would adversely affect the nation’s food stocks. In addition, its protectionist policies would inhibit the essential foreign investments from financing the overhaul. However, at a 2006 international conference in Havana, sugar industry officials introduced measures to modernize 11 distilleries as well as add 7 new ones in an attempt to expand the industry. But alas, the reform has namely modernized sugar cane production with respect to alcohol and pharmaceuticals. Conrado Moreno of the Cuban Academy of Sciences stated that, “ethanol will not go towards the production of fuel.” The feasibility of a Cuban ethanol program lays in the hopes that Raul Castro may be more amenable than his older brother.

“The sugar cane industry and its associated cultural effects have been ingrained in many states here and makes it easy to revamp and expand such an industry,” Curtis Mohammed of Trinidad Bulk Traders Ltd has contended. “All that is needed is that the respective governments hand the baton over to private sector entities and provide the investment climate to make this a reality.” But as the recent failure of the Jamaican government to reach an agreement on the sale of its state-owned plantations to the Brazilian company Infinity Bio-Energy demonstrates, the ostensibly simple task suggested by Mohammed appears to be more difficult to fulfill in practice. “Our negotiating partners have not been able to secure the investor support that is required to deal with the obligations of this agreement,” lamented Jamaican Prime Minister Bruce Golding. The Jamaican debacle regrettably represents one of very few proactive attempts to revive what could come to be the region’s miracle crop.

In February, the United Nations Commission on Sustainable Development (CSD) convened to discuss barriers and highlight useful practices in rural agricultural development. The representative from Barbados noted the need to maintain a strong agricultural sector on the island, yet did not allude to the need to utilize its ethanol exporting potential. The lack of dialogue at the meeting concerning investment in ethanol demonstrates the shortcomings of the Caribbean industry. West Indian governments would be well advised to look to Brazil as a model for development, where national will and sound pro-ethanol practices have a proven record of success.

The Sweetness of Brazilian Ethanol

Brazil escaped largely unscathed when the price of oil escalated during the summer of 2008, much to the chagrin of the considerable part of the world that was paying exorbitant prices for petroleum-based fuel. E25 cars, which can accommodate 25 percent anhydrous ethanol and E100 cars, which run exclusively on pure hydrous ethanol are commonplace in Brazil. More than 90 percent of new cars in the country are “flex-fuel” vehicles. The South American country learned its lesson after the 1973 oil crisis, during which the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an oil embargo on much of the western world. The emergency that ensued had a debilitating impact on Brazil, which imported 90 percent of its oil at the time.

The shock prompted Brasília to launch a prodigious research and infrastructure development initiative for alternative energy sources, and quickly inaugurated the National Alcohol Program (Proálcol) in a studied attempt to increase the production of sugar cane ethanol.

Yet biofuel technology in Brazil was still very much underdeveloped. The Campinas Agronomic Institute embarked on a rigorous research project that created cane mutations that were able to adjust to changing soil and weather conditions. The result was that it was able to produce higher yields within a shorter period of time, and better tolerated pests. In time, Brazil’s sugar cane ethanol production grew significantly from 0.6 billion liters in 1975, to 11 billion liters in 1990, and 16.3 billion liters in 2006. With modern farming methods producing yields of 80,000 tons of sugar cane per hectare today, compared to less than 10,000 tons per hectare twenty years ago, Brazil’s ethanol production also has increased dramatically.

The region’s giant owes its success, at least in part, to the salubrious conditions that exist in the southern cone. “Because of its extensive areas of under-utilized arable land, and high volumes of water, [Brazil] can vastly increase its sugar cane production,” explains Peter Briger, president of Hydromine Inc., a natural resource development company. Moreover, he argues that productivity per hectare “could be further increased through the use of drip agriculture as developed by the Israelis and Spanish.” Without a doubt, the prolificacy of Brazil’s now mature ethanol industry is largely responsible for helping the hemispheric power achieve energy independence and has simultaneously provided noticeable fiscal benefits. “The Brazilian economy has saved $400bn in imports since the creation of the National Alcohol Program,” boasted Luiz Custodio Martins, president of the Sugar and Alcohol Union, as early as 2006.

Hemispheric Partnership
Brazil’s sugar cane farmers will likely look to President Obama to strengthen the two countries largely illusionary existing ethanol trade partnership. The relationship with the U.S. to date has been thwarted by a stiff 54-cent-per-gallon tariff imposed by the U.S. on Brazilian fuel imports, meant to offset an economic incentive of 51-cents-per-gallon for using ethanol in gasoline. As a result of the tariff, southern cone ethanol producers have had to infiltrate the American market by way of Brazilian-owned processing facilities in El Salvador and Jamaica that benefit from a duty free trade relationship with Washington through the CBI.

During a 2007 meeting in Sao Paulo, former President Bush and Brazilian President Luiz Inácio Lula da Silva agreed to cooperate on biofuel technology and development, but brazenly avoided talking about the application of tariffs. In addition to dismissing Lula’s plea for removing the fuel tax, Bush also refused to cut subsidies for U.S. corn ethanol producers, which have accounted for 76 percent of all renewable energy subsidies in 2007, according to the Environmental Working Group. While the U.S. government has significantly reduced corn subsidies in recent years (accounting for $41.9 billion between 1995 and 2004), without such contributions from Washington, ethanol producers would be virtually nonexistent in the U.S. With President Obama ostensibly being more receptive to new ideas, a revamped era of U.S.-Brazilian relations may come sooner rather than later.

On March 14, President Lula became the first Latin America leader to meet with President Obama. In addition to discussing U.S. policy towards Venezuela and Cuba, and the global economic crisis, the two heads of state also pledged to strengthen biofuel trade links between the world’s foremost ethanol producing nations. Historically, ethanol trade relations between the two countries have been strained as a consequence of the tariff. “Its not going to change overnight, but I do think that as we continue bold exchanges of ideas, commerce and trade around the issue of biodiesel that, over time, this source of tensions can get resolved,” asserted Obama.

In addition to increasing trade, this intra-hemispheric relationship would ostensibly have a significant political impact on the region. IDB president, Luis Alberto Moreno maintains that, “By serving as a catalyst for rural development and a new source of trade with its hemispheric neighbors, ethanol imports will actually advance U.S. strategic interests—something that cannot be said of oil imports from the Middle East,” It remains to be seen, however, if the Caribbean nations will be included in these developments. In spite of the advantage of tariff-free trade through the CBI, the immature and small-scale Caribbean ethanol programs have yet to establish large-scale trade relations with hungry U.S. and European markets. Even with the existence of Brazil’s pioneering program, only 10 percent of all ethanol produced worldwide is traded internationally.

Potential Hurdles for an Incoming Tide
According to Arnaldo Vierra de Carvalho, an IDB sustainable energy specialist, “Central America and the Caribbean are well experienced in sugar production, so they know exactly what sugar cane means in terms of its business and technical aspects. What’s really new for them is producing ethanol and doing it in a competitive environment.” Indeed, the Caribbean has an extensive history with sugar cane, but it has only flirted with ethanol. If, in fact, their still very youthful programs were to expand the production and export of ethanol, several obstacles would stand in their way – especially in the near future.

As seen in Brazil, developing a viable ethanol program takes time. Although international demand for alternative energy sources has skyrocketed in recent years, it can take decades to establish a successful operation. “That is why it is so crucial to have a sustained, well-coordinated strategy that engages all the stakeholders, supports research to improve sugar cane varieties and processing methods, provides financial incentives to private investors and generates confidence among consumers,” asserts Vierra. As populations around the world rapidly look to alternative fuel to help reduce their carbon emissions, it is unrealistic, even naïve to imagine that the necessary transformations of the now moribund Caribbean industry can be easily achieved in such a narrow time frame.

Another possible explanation for the Caribbean’s lack of investment in ethanol is the notion that many islands would not be fit to supply the demand for global ethanol production. This is due to the comparatively small amount of arable land on many of the islands. From this perspective, expanding sugar production may well lead to a return to the colonial-era domination of the crop model, without the advantages of economy of scale.

On the other hand, many islands appear to have the capacity to support a massive expansion of sugar cane production. For example, Cuba only uses 700 thousand hectares of its 6,655 thousand hectares of arable land. Even some small islands appear to be able to accommodate vastly increased cultivation. Trinidad and Tobago uses a mere 12 thousand hectares of its 122 thousand hectare total.

Perhaps the most imperative variable in ethanol development in the region is international investment. Despite extensive research and development, a groundbreaking deal has yet to be brokered. The recent failure of Infinity Bio-Energy and the Jamaican government to strike an agreement on the country’s sugar factories illustrates a genuine effort to put adequate funds into Caribbean basin programs. Right after the fiasco, Kingston reopened its search for potential buyers.

Although recent attempts have been largely fruitless, it appears that foreign investors remain interested in the region–an integral part of the equation, given the Caribbean’s fundamental dependence on U.S. and European funding. In January 2008, IDB’s Sustainable Energy and Climate Change Initiative (SECCI) approved a $750,000 donation for feasibility studies of biofuels in Haiti, El Salvador, and the Dominican Republic. The research, which is being performed by Brazilian Getulio Vargas Foundation (FGV), exemplifies a concerted effort to develop the region’s ethanol industry. Moreover, the Dominican Finance Minister, Vicente Bengoa, refers to an 84 percent rise in FDI in 2008.

However, other islands are not nearly as appealing as destinations for FDI. Recent protests in the French départments Guadeloupe and Martinique illustrate the untimeliness for massive investment in some Caribbean ethanol programs. Similarly, in a March 2009 visit to Haiti, U.N. Secretary General Ban Ki-moon and former U.S. President Bill Clinton pressed the Préval administration to do more to, “implement the social and economic reforms necessary to attract investment.” While the IDB is conducting feasibility studies on both sides of Hispaniola, it seems that increased relief efforts would alleviate the hostile atmosphere that exists on the streets of Port-au-Prince, as well as other islands with problems of stability, rather than FDI.

A Window of Opportunity?
While it is clear that Caribbean ethanol can neither solve the world’s energy crisis on its own nor thrive in all respects as Brazil’s program has, the argument for revitalizing the Caribbean sugar cane industry still remains compelling. The range of foreign players that have demonstrated an interest in developing ethanol programs in the region have yet to move their plans past the preliminary stages and take full advantage of duty free trading with the U.S. The immediate future holds little hope for the Caribbean ethanol programs, which could take decades to reach the competitive stage, but they certainly have enormous potential. In addition to serving as a catalyst for sustainable rural development, it is likely that ethanol and other biofuels will play an increasingly important role as countries seek to reach carbon emission targets. The world is thus presented with two potential paths for advancing its ethanol potential: it can seek to establish legitimate partnerships that expand ethanol production and trade in the region, or it can listlessly allow this chance of a lifetime to slip by.

One thought on “Can Fading Caribbean Island-States Thrive in the World of Alternative Energy?

  • March 29, 2009 at 10:31 am
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    David Rosenblum Felson’s article entitled “Can Fading Caribbean Island-States Thrive in the World of Alternative Energy?” is quite informative and well done, there are some factual errors regarding the Brazilian ethanol industry that warrant a correction.

    First, Brazilian cars run on either E25 (gasoline blended with 25% anhydrous ethanol) or, in the case of FlexFuel cars, up to E100 (pure hydrous ethanol). E85 is only used in cold climates like the U.S.

    Second, the correct percentage of new cars in Brazil that are Flex Fuel is 90% in 2008. Looking at it another way, since 2003 when the flex fuel car began to be sold in Brazil, we’ve replaced well over one third of the country’s auto fleet with flex fuel cars. All automakers now sell flex fuel cars in Brazil.

    Third, when Brazil began its ethanol program in the 1970s, the country was almost 90% dependent on imports of oil. Fourth, the while the import levy is 54 cents per gallon (plus 2.5% ad valorem), the so-called blenders credit is now 45 cents per gallon (thanks to the 2008 Farm Bill). Even if one buys into the claim that the border charge is meant to offset the tax credit, one would have to recognize that that’s not what happens. Brazilian ethanol is paying about 30% tax at the border.

    Finally, while it is true that dehydrating hydrous ethanol in Caribbean countries means that Brazilians can export to the US via the Caribbean without paying the 54 cents import levy, one has to remember that this process requires heavy fuel oil imports (costs about 20-30 cents per gallon to dehydrate due to high oil cost) as well as generates very few jobs in Caribbean countries. In short, if the intent of the policy is to generate jobs and economic growth in the Caribbean, that’s not the case. Unfortunately as several articles have pointed out (see http://sugarcaneblog.wordpress.com/2008/07/22/for-caribbean-rum-more-interesting-than-ethanol/) some Caribbean countries prefer to import fossil fuels and export rum.

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