PATTERSON SEEKS SUGAR RELIEF FROM TONY BLAIR

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