The owners of the Lebanese Sugar Factory in Majdal Anjar claim to have lost millions of dollars due to the government decision to abolish the sugar beet subsidy system and have sued the state to obtain compensation.
Ahmed Ajami has worked as a guard at the National Sugar Factory since 1975. Today there is not much left to guard. Apart from a brief spell in 2004, the factory has been closed since 2001. A large heap of white stones, which used to be boiled to distract the calcium needed to refine sugar beet, is the only sign of what life use to be like. “During the sugar beet season, the factory employed over 250 people, mostly from Majdal Anjar, like me,” he sighed. “Of course we are all anxious about the government’s final word on sugar beet. It is our livelihood that’s at stake.”
Situated just outside the border town of Majdal Anjar, the Lebanese Sugar Factory was established in 1958. Through the years, its initial capacity of some 350 tons of sugar beet per day was gradually upgraded. The factory closed in 1985, when the government was no longer able to pay subsidies. The factory reopened in 1992 after the civil war.
”My father was one of the factory’s founding members,” said Raif Kassem. “It was the first factory in the Bekaa valley. By 1985, we were already going back and forth between the United States and Lebanon, but when the factory closed, we decided to permanently base ourselves in Los Angeles.”
Kassem started a business, enjoyed the American way of life, and had no intention of coming back. Then in 1991 he got a phone call from President Hrawi. “He asked me to come back to Lebanon to reopen the factory,” he said. “Later, the Ministers of Agriculture and Economy also contacted me and they all insisted I should come back to reopen the factory, and so I did.”
According to Kassem, the aim of reintroducing sugar beet subsidies was threefold: to replace the farming of illicit crops, to plant a crop that is good for crop rotation and to create employment. However the factory was far too small for modern needs. Kassem claims to have invested some $12 million in new equipment, everything from sorting machines to cooking pans, which he imported from Germany. The factory’s capacity was increased from some 1,700 tons in 1991 to some 2,500 tons of sugar beet per day in 2000. “The cost of processing sugar beet depends first of all on the quantity of beet involved,” he explained. “The bigger the quantity, the lower the price. Given a quantity of 180,000 tons of sugar beet with 16% sugar content per beet, the cost of producing 1 ton of white sugar is $330. Given a quantity of 300,000 tons, the cost will decrease to $275. About one third of that amount is fuel related, as it takes 62 liters of fuel oil to refine 1 ton of sugar beet.”
The government would receive the factory’s invoice and pay for the cost, plus the operator’s fee. According to Antoine Khoury, Director General of the Office of Sugar Beet and Wheat at the Ministry of Economy the government paid the factory $70 million between 1992 and 2000. “Some people accuse us of making lots of money,” Kassem continued, “but the opposite is true. Over the years, we were only able to earn back some $6 million on our investment of $12 million. As a result, we are in a terrible financial situation. In fact, because of the losses at the factory all our other businesses are suffering.”
After trying in vain to convince the government of its dire financial situation, the Kassem family has sued the government in two separate trials, one to reinstall the subsidy system, the other to obtain compensation for the $6 million loss it suffered. “The subsidy system was introduced by law,” Kassem argued, “which means that legally you cannot change that by a simple decree, as the government did in 2000. It needs a parliamentary vote. Secondly, we came back on the request of the government in the mutual understanding that we would be able to make a living. Now, if the government wants to change the system, fine, but give us a period of say 3 years, so we can adapt and earn back our money.”
This appears to be what the Seniora government had in mind when it suggested keeping subsidies in place for another three years, when it capitulated in the face the farmers’ threat to blockade Beirut last October. However, according Kassem’s son Amer, this will not be sufficient to successfully keep the factory operating.
“It is still not clear what the government intends to do,” he said. “It seems they want to take 2004 as starting point, when only a limited amount of some 50,000 tons of sugar beet were produced, and then reduce the subsidies by 30% per year. However, the factory needs a minimum of 200,000 tons to be profitable.”
As a compromise, some have suggested to cut all agricultural subsidies by 10% to 15%, instead of getting rid of just one. For political reasons however, the annual $65 million that goes to tobacco farmers in the south seems untouchable.
Meanwhile, the world market may come to the rescue of Lebanese sugar. The Lebanese government’s main argument is that producing sugar is too expensive compared to world market prices, but ever since the WTO’s decision regarding the European sugar regime (see box II), the price of sugar has been steadily rising.
“It’s not just the WTO decision,” said Kassem junior. “The price of sugar is connected with the price of oil. Every time the price of oil increases, Brazil increases its production of ethanol (alcohol made out of sugar that is used as fuel), with as a consequence that the world supply of sugar goes down and prices rise. Currently the price of sugar is about $420, which is not too far a cry from the $500 which the government charges sugar importers to buy Lebanese sugar. But then again, look at at it another way. Is $15 to $20 million a year too high a price to pay to keep the Bekaa valley alive?”