Guatemala’s sugar industry rakes in profits thanks to high productivity, low wages

First in a series

ESCUINTLA, Guatemala – It’s a 30-minute helicopter ride from the shiny glass skyscrapers of Guatemala City to the sprawling La Unión sugar mill in Guatemala’s department of Escuintla, not far from the country’s Pacific coast.

Two powerful organizations – the Guatemalan Sugar Producers Association (ASAZGUA) and its social-welfare arm, Fundazucar – help power this multimillion-dollar industry, employing thousands of workers. These two groups recently hosted this reporter for an inside look at how the business is run.

Upon arrival at La Unión, I fully expected to find dozens of cane-cutters working the fields, filling containers with caña and maybe later eating lunch in a communal cafeteria.

I did not expect to see colorful Spanish-language cartoons on the walls of their army-like barracks, telling these campesinos how to go to the bathroom and use toilet paper. Or posters convincing them why they should be grateful to have the jobs they have. Or a social worker in the nearby town of Santa Lucía Cotzumalguapa using handmade puppets to teach expectant single mothers how to care for their new babies.

But I did see all that, and more, in the company of Fundazucar’s assistant director, Griseldo Say López, and ASAZGUA spokesman Otto René Estrada.

What became clear to me after a morning tour of Guatemala’s third-largest sugar operation, followed by a presentation by the Centro Guatemalteco de Investigación y Capacitación de la Caña (Cengicaña) and a late afternoon meeting with ASAZGUA’s president, Armando Boesche, is that when it comes to efficiency and productivity in the sugar industry, the rest of Central America has a lot to learn.

According to Estrada, Guatemala’s competitiveness in the sugar industry is based on three elements: “productivity, R&D and technology.”

“We offer the best working conditions possible, because this translates into better productivity,” said Estrada, whose organization was founded in 1957 to represent Guatemala’s sugar interests. “All this is based on social responsibility. In an industry as competitive as sugar, we have to respect our workers. This is fundamental.”

Guatemala has seen similar success with its coffee, banana and winter vegetable exports. It is now becoming a major exporter of African palm oil, an edible oil that also is used to manufacture biofuels.

As human resources manager at La Unión, Fernando Letona is in charge of the well being of 2,800 sugar workers.

“They’re very graphic,” Letona said, as we gazed at the huge banners tacked on the walls of Tehuantepec barracks, which are home to some 400 cane-cutters, known in Spanish as cortadores de caña. La Unión has four more barracks just like Tehuantepec, each with their own dormitories, clinics, dining rooms and exercise areas.

“All these workers have come from the altiplano,” or high plains, he said. “Work hours are 6:30 a.m. until 3 p.m., with a 15-minute rest in the morning and half an hour for lunch. Breakfast and dinner are served in the comedor, while lunch is served in the field, from food trucks.”

Letona said that feeding workers well results in higher yields.

“Before we invested in all this, each cortador was cutting 2.5 tons per day. Now they cut 6-7 tons, and some up to 12 tons,” he said. “It’s evident that this investment has had positive effects on productivity.”

Workers normally earn 3,800 quetzales ($485) per month, which translates into Q21.60 ($2.75) per hour, he said. That doesn’t include fringe benefits, which come to 42 percent of wages. After taxes and social security, workers keep an average of Q3,500, or $450 per month.

“They get paid every Saturday, in cash. And every Christmas and Easter Holy Week, they go back to their villages in the altiplano,” Letona said. “We have a turnover of only 0.85 percent per month, and each harvest, nine out of 10 of our cortadores want to come back.”

Not that they have much of a choice.

Guatemala, with the highest proportion of indigenous people of any country in the Western Hemisphere, also ranks as one of Latin America’s poorest. Its 15 million inhabitants have been ravaged by civil war, and much of Guatemala’s wealth is concentrated in the hands of relatively few families – as was Cuba’s before the 1959 revolution that brought Fidel Castro to power.

Under Guatemalan law, all workers have the right to form unions – as long as a minimum of 28 workers petition for one – but so far, only one of ASAZGUA’s member companies, Palo Gordo, is unionized.

This is but only one factor that explains how Guatemala has become the largest sugar exporter in Central America and the third-most productive sugar producer in the world after Colombia and Swaziland.

In the 2011-2012 harvest, Guatemala exported 1.65 million metric tons of sugar – more than Cuba’s entire sugar crop, and more than the sugar exports of El Salvador, Nicaragua, Honduras, Costa Rica and Panama combined.

Guatemala now ranks as the world’s fourth largest sugar exporter, after Brazil, Thailand and Australia, according to the International Sugar Organization, while Cuba ranks seventh, just ahead of Colombia.

But when it comes to productivity, Guatemala’s performance is even more impressive. In 2008, according to ASAZGUA figures, Colombia led the world in productivity, with 14.6 tons of sugar per hectare under cultivation, followed by tiny Swaziland (13.9) and then Guatemala (12.2).

The next nine countries, in descending rank for productivity, were Australia, Sudan, China, Brazil, Mexico, United States, India, Thailand and South Africa. Cuba wasn’t even on the chart.

In 2012, sugar exports to the United States, Canada, South Korea, Mexico, Chile, China, Taiwan, Bangladesh and other customers generated $843.7 million in foreign exchange for Guatemala and employed 350,000 people, 73,000 of them directly. That ranks just behind coffee ($955.9 million) in terms of importance for the country, but well ahead of Guatemala’s two other key agricultural exports: bananas ($469.9 million) and cardamom ($250.3 million).

Sugar today represents 14.4 percent of Guatemala’s total exports, 27.1 percent of its agricultural exports and 3 percent of its gross domestic product.

“Something elemental we’ve done is to give workers dignified, decent jobs so that they’ll feel content with what they’re doing,” Letona said. “You’ll see the same at any ingenio [sugar factory]. In Cuba, a cortador doesn’t want to cut sugar because he won’t earn any money. Here, workers have the possibility of improving their standard of living.”

In Cuba, by comparison, an average machetero earns the equivalent of $40 a month, plus a “stimulus” bag containing two bars of soap, a bottle of cooking oil and some pasta.

Cengicaña’s general director, Mario Melgar, says Guatemala has the “recipe for success.” Melgar partly credits the 1992 establishment of Cengicaña, which has 75 employees and operates on a $2 million annual budget.

“Before that, each ingenio did its own R&D,” he said, noting that Cengicaña is one of only six sugar research centers financed by the private sector (the others are in Australia, Brazil, Colombia and Ecuador). “Each sugar producer pays a quota depending on its production.”

In the 21 years since Cengicaña’s creation, it has introduced 1,875 sugar varieties to Guatemala (including 1,155 brought from Florida, 164 from Mexico, 120 from Brazil, 60 from Barbados, 58 from Australia and Louisiana each, 54 from Cuba and 53 from Puerto Rico).

Guatemala now cultivates 235,000 hectares of caña, mainly in the departments of Escuintla, Suchitepéquez, Retalhuleu and Santa Rosa.

Boesche, a 73-year-old ASAZGUA executive, works from a wood-paneled office on the 19th floor of the swanky Euro Plaza skyscraper. He’s headed the organization for the past 27 years. During that time, he says, Guatemala’s area under cultivation has tripled, while yield has jumped from 66.3 tons per hectare in 1984-85 to 95.4 tons per hectare today.

Daily milling capacity, meanwhile, has nearly tripled from 53,093 tons in the 1984-85 season to 151,673 tons in 2011-12.

“Guatemala is a small country, not like Brazil or Colombia, so productivity for us is very important,” Boesche said proudly. “With what we export, we could supply all of Central America, including Panama.”

In the next parts of the series, we look at Guatemala’s banana, coffee and African palm industries.