SEPROD, the manufacturing conglomerate, will restructure or exit its operations at Golden Grove Sugar Company after accumulating losses of $2 billion and now facing a dip in the price of sugar, as it also weighs the impact on its 1,200 cane workers.

The group argued that it cannot continue absorbing these losses accumulated over five years since acquisition.

“From our point of view we will continue to partake in this industry if the industry is restructured to our liking — and if not, then we will be exiting the industry,” stated chairman Paul B Scott in response to Jamaica Observer queries at the annual general meeting on Monday at the Jamaica Pegasus Hotel in Kingston.

Golden Grove sells all the sugar it produces to Jamaica Cane Products Sales Ltd, a company that operates as a marketing agency of the Sugar Industry Authority (SIA) with private-sector ownership from cane farmers and manufacturers. JCPS negotiates pricing with its buyers. Golden Grove wants to take charge of its own revenue destiny and utilise the sales and distribution strength of Seprod. As such, the group wants to be granted marketing agency status by the SIA to allow it to sell its own sugar. The Chinese-led Pan Caribbean owns plantations and also has marketing agency status.

The factory recently finished harvesting its cane but remains reluctant to restart operations within the context of a projected one-third drop in sugar prices to an already loss-making entity.

A shareholder identified as Lloyd Benjamin urged Scott to keep the factory open to save the livelihood of thousands in St Thomas.

“We are going to be sending thousands of people into poverty, hunger, hardship and starvation. Some of you might not know the area. That area has some of the poorest people in Jamaica. They will have nothing else to fall back on if Golden Grove closes tomorrow…. I urge you to make the appeal to the highest level because it is incumbent that this factory remains open. It’s going to be starvation if this factory closes,” Benjamin indicated about Golden Grove in Duckenfield, St Thomas.

In 2009, Seprod acquired the St Thomas Sugar Company production and named it Golden Grove Sugar Company. It’s described by the group as the only locally owned sugar factory with a bagging facility.

“You are absolutely correct, Seprod is a nation-building company and not an entity that would walk away from its responsibility,” Scott stated in response to Benjamain. “[But] fundamentally the industry needs restructuring. It is structured in a way that you cannot determine your revenue. And if you cannot determine your revenue, then you cannot run a business. Full stop. I don’t know if this microphone can get any louder. We are trying to keep that business operating. But at the end of the day we have a responsibility to ensure that the business does not impair our overall viability and investments that we need to make in order for Jamaica to be competitive in other areas such as dairy.”

The factory produced 19,000 metric tonnes of sugar in the 2014 financial year or one-third higher than a year earlier. But the “bad news” was that poor cane quality resulted in more cane being required to produce an equivalent amount of sugar.

New chief executive officer Richard Pandohie, in his inaugural address to the annual general meeting on Monday, outlined planned investments in dairy and retail products while also revealing steps to stem the losses at Golden Grove.

“Golden Grove is the elephant in the room. The company has invested $3 billion in the past years to improve the operations and expand the cane supply. We have been unable to make the operation profitable, running up losses in excess of $2 billion. This year will also be disappointing with the harvest already completed,” Pandohie said, adding that its cost profile remains high and the framework governing the sale of sugar limits the use of Seprod’s distribution and sales strength to garner revenues.

“Management has drawn a line in the sand. We have calculated our cost to walk away from the operations and now our mandate is to ensure that our costs do not increase from hereon,” Pandohie said, explaining that it comes within the context of the projected one-third drop in sugar prices paid to manufacturers from $75,000 per metric tonne to $51,000 per metric tonne.

“It’s a gap we cannot recover under our present operating model. It is our intent that Golden Grove will operate on a stand-alone basis and pay its own bills and not destroy the profit and loss value created in the other subsidiaries. We will restructure the entire supply chain of the operations, mindful of the critical role that Golden Grove plays in the Jamaica economy, especially eastern Jamaica.”

Just months earlier, details in Seprod’s annual report revealed thoughts of setting up a power plant to cut costs amid posting disappointing earnings from sugar. Cane typically produces four revenue streams including sugar, molasses, rum and energy. But only sugar and molasses are exploited at its Golden Grove factory.

“Furthermore, not only are we not generating energy but we are actually purchasing energy from the grid, a very untenable situation. Management is reviewing several options for a co-generation unit, which could significantly change the cost and revenue profile of Golden Grove,” stated Pandohie in his statement accompanying the annual report released in April.

In 2012, Seprod told media it was mulling investing in a 30-megawatt plant fuelled by biogas — a by-product of sugar cane — and supplemented with liquefied natural gas. Despite efficiency concerns the group made $1.05 billion total comprehensive income on $14.7 billion in revenues for its 2014 financial year ending December.

Sperod also reiterated plans to triple export earnings in three years from its current $1/2 billion level. Seprod’s 2011 annual report stated that by 2015 it expects to increase cane production from 190,000 tonnes to 300,000 tonnes. It remains on target as actual cane crushed totalled 255,000 in 2014.

The group sees its future prospects partially in growing export earnings amid concerns of an ever depreciating Jamaican dollar.

“In 2014, export revenue of $544 million represented 4.0 per cent of total revenue. We aim to increase this to 12 to 15 per cent by 2017,” stated Pandohie on the proposal which would take export earnings within the region of $2 billion based on Business Observer estimates.

Seprod previously told the Business Observer that it plans to locally produce whipping cream, yogurts, smoothies and cheese, while also investing in its farm in order to double the milk yield per cow. This is part of the company’s ongoing US$4.6 million in milk investments for its 2015 financial year.