US embassy cable - 05KINGSTON1532

UNCLAS SECTION 01 OF 02 KINGSTON 001532 
 
SIPDIS 
 
STATE FOR WHA/CAR (WBENT) 
 
E.O. 12958:  NA 
TAGS: ECON, EAGR, ETRD, JM, ENG 
SUBJECT: PATTERSON SEEKS SUGAR RELIEF FROM TONY BLAIR 
 
REF: A) KINGSTON 1042 
 
B) KINGSTON 1444 
 
1. Summary:  On June 10, Prime Minister P.J. Patterson 
wrote to British Prime Minister Tony Blair seeking support 
for relief from the European Commission's (EC) planned 39 
percent cut in the price guaranteed to Caribbean sugar 
producers.  In his letter, Patterson complained that the 
cut is unrealistic, and will cause the sugar industry to 
collapse.  The letter comes in advance of the June 22 
meeting of the EC to set the rate cuts into law, and 
against the backdrop of a Jamaican sugar industry having 
its worst production levels in 60 years.  The GOJ hopes to 
secure more time in which to shift from reliance on raw 
sugar export to the production of higher-value ethanol for 
use as a fuel additive.  End Summary. 
 
2. On June 10, Prime Minister P.J. Patterson wrote to 
British Prime Minister Tony Blair seeking support for 
relief from the European Commission's 39 percent cut in 
the price guaranteed to Caribbean sugar producers over the 
course of three years (ref A). 
 
3. In the letter, Patterson protested that the planned 
rate cut is "unrealistic", and will cause the Jamaican 
industry to collapse before it has a chance to adapt, 
placing into crisis 250,000 people that, according to 
Patterson, depend on the industry.  He also complained 
that the EU had not adequately consulted with the GOJ 
before moving ahead with the removal of price supports. 
Patterson admitted that the sugar industry cannot survive 
in its present model, and stated that Jamaican sugar 
producers were working to identify alternative uses for 
cane.  To allow an "adequate, properly funded preparatory 
period," Patterson informed Blair that he expected him to 
fight for a "reasonable transition period". 
 
4.  On June 15, Econoff contacted Clara Quantrill, Second 
Secretary at the British High Commission (BHC) about HMG's 
 
SIPDIS 
reaction to Patterson's letter.  The BHC had not received 
a copy of the letter, said Quantrill, and had not received 
any indication of PM Blair's planned response.  However, 
upon hearing the letter's contents, Quantrill said that it 
was the same message the GOJ had been sending for the past 
three years.  She added that the HMG's position is that 
the sugar quota and price guarantees are an internal 
European Commission matter and that, while the U.K. has 
long enjoyed a close relationship with the Caribbean and 
would continue to look out for their interests, HMG would 
abide by the final decision reached by the Commission. 
 
5. On June 15, Econoff met with Karl James, General 
Manager of Jamaica Cane Products Sales Limited.  James 
noted that Patterson had been deeply involved in the sugar 
trade since playing a role in the negotiation of the 
current protocol in 1975, and has known for a decade that 
the current arrangement was scheduled for a revision. 
Patterson's primary complaint, according to James, was 
that the GOJ only learned the details second hand, 
following vague promises by European trade partners in 
April 2004 that any adjustment in price guarantees would 
be phased in over 10 to 15 years.  In July 2004, the GOH 
learned through public documents that the details of the 
proposed change had been set at a 37 percent price cut 
over three years, beginning in 2005.  In response to GOJ 
protests, James said, European negotiators agreed in 
principle to a start date of July 2006, and that the size 
of the cuts was just a proposal. 
 
6. According to James, Patterson's letter of protest to 
Blair was triggered by a new piece of information, 
reported in media, that the size of the proposed cuts had 
been increased to 39 percent, and that the new plan would 
be codified in formal legislation on June 22.  James 
stated that Patterson believes that the recent rejection 
of the EU constitution by French and Dutch voters shows 
that the people of Europe are not happy with the 
bureaucrats in the EU parliament, and hopes that, through 
bilateral diplomacy, Jamaica's guaranteed sugar price and 
purchasing arrangements with individual EU member-state 
governments might be preserved. 
 
7. According to James, the GOJ acknowledges that the 
current structure of the Jamaican sugar industry is 
unworkable, and must evolve or die.  He added that, at the 
present time, the GOJ is seeking a delay in the inception 
of the planned EU price-guarantee reduction.  The reason 
for the delay, James said, would be to allow Jamaica's 
sugar industry to transition into a new business model of 
using sugar cane primarily as an energy source - burning 
the cane husks to power electrical generators and 
converting the molasses into ethanol. 
 
8. James stated that the GOJ is very interested in 
developing a large ethanol industry on the island with 
Brazilian assistance.  A pilot ethanol refinery at the 
main Petrojam facility, built with Brazilian investment, 
is scheduled to begin conversion of Brazilian feedstock 
(molasses) in late June.  James said that several more 
plants are planned, with the long-term goal of supplying 
both the U.S. market and the Jamaican domestic market. 
 
9.  According to James, the Ministry of Commerce Science 
and Technology (with Energy) (MCSTE) is drafting new 
regulations that will require gasoline sold in Jamaica to 
be 10 percent ethanol by weight, replacing the toxic fuel 
additive in current use, methyl tertiary butyl ether 
(MTBE), which has been banned and replaced with ethanol in 
many parts of the United States.  James estimated that, 
just to meet the Jamaican domestic demand for ethanol once 
the new legislation goes into effect, over 700,000 tons of 
sugar would be needed.  In the 2004-2005 harvest (the 
worst since the labor unrest of 1938), only 128,000 tons 
of sugar were produced, leading to unfilled export quotas 
and even short supplies on domestic supermarket shelves. 
James argued that, in order for the conversion to ethanol 
to succeed, the GOJ would have to take immediate action to 
increase the amount of cane producing land to meet 
expected demand. 
 
10. On June 16, Econoff spoke with Andre Johnston, a 
Petroleum Safety Inspector at the MCSTE's Petroleum Safety 
Inspectorate.  Johnston clarified that the idea of 
replacing MTBE with ethanol has been approved by Cabinet, 
following a formal submission of the proposal in 2004. 
The MCSTE is currently forming an interagency group, 
including representatives of the GOJ and the petroleum 
industry, to work out the basics of timelines and 
policies.  Johnston said that not enough research has been 
done to verify James' estimate that 700,000 tons of sugar 
would be needed to meet domestic demand, but that the GOJ 
did plan to eventually switch over to sourcing their 
ethanol feedstock from domestic suppliers. 
 
11. Comment: Patterson's figure of 250,000 people 
dependent on the sugar industry conflicts with industry 
estimates of roughly 25,000 people directly dependent on 
sugar.  James and P/E Chief briefly discussed the 
Patterson letter at a reception on June 14, and James said 
that Patterson was using a Caribbean-wide figure here, 
rather than a Jamaica-specific one.  The Prime Minister's 
protestations of "lack of consultation" may be viewed in 
light of similar recent public complaints about the 
recently released Trafficking In Persons report (ref B), 
for which senior GOJ officials feigned ignorance of the 
extensive prior USG consultations with the GOJ on that 
issue. 
 
12.  Comment (cont'd): James' projections for the future 
of the sugar industry seem decidedly optimistic, 
especially if he is counting on the GOJ to increase 
production to 700,000 tons per year, while quotas 
currently go unfilled and store shelves in Jamaica are 
empty of sugar.  Given the slow pace of agricultural 
reform evidenced by the GOJ in the past, it seems highly 
unlikely that a full-fledged domestic ethanol industry can 
appear before the planned price-guarantee reduction is 
completed.  End Comment. 
 
TIGHE