Economic Diversification Northern Belize

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Belize Sugar Belt Diversification

Identification of priority sectors offering economic diversification opportunities and development of proposals for investments supportive of the required social and economic services/infrastructure and capacity building in the Districts of Corozal and Orange Walk in Northern Belize as their economies adapt to change

January - March 2008

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Background

National Economic Situation

Belize has a small open economy. With a population of 291,800, about 52% of it rural based, there is relatively limited market opportunity for products from the rural sector in the domestic market. Its land space of 22,963 km2, pristine marine environment and its unspoiled forests with attendant antiquities offer opportunities for natural resource based commerce such as export agriculture and fisheries and tourism. Between 2001 and 2005 tourist arrivals increased by 425%, with overnight stays up by 21%. Provisional figures for 2006 indicate a drop in arrivals of around 13%, although overnight stays rose by about 5%. Agriculture, fishing and tourism contribute in excess of 70% to GDP, which reached US$1,107m in 2005 and a provisional estimated US$1,226m in 2006. Agriculture, industry and services contribute an estimated 22.5%, 14.8% and 62.6% respectively to Gross Domestic Product, with about 27%, 18% and 55% of the workforce employed in these sectors. Exports of sugar and bananas account for 18% of GDP and employ 21% of the workforce. The 2006 annual labour force survey showed national unemployment falling from 11% to 9.4% primarily due to the vibrancy of tourism.

Growth in the Belizean economy took a downward trend in the period 2000-2005. From a record growth performance of 13% in 2000 economic growth (in real 2000 prices) slowed to 4.6% in 2004. A persistent growing fiscal imbalance forced Government into a more conservative expenditure stance in 2004. The result has been a reduction in the fiscal deficit from 8% of GDP in 2004 to 3.9% of GDP in 2005 with economic growth 3.1% in 2005 and 4% in 2006.

Nationally, the Government of Belize foresees development of sectors based upon further environmentally benign exploitation of natural resources in areas such as tourism, agriculture, fisheries, forestry etc as well as construction, often associated with the above-mentioned, manufacturing, and commerce as the main avenues for economic development.

Social Situation

Belize's population is growing at about 3% annually, driven by national birth and fertility rates of about 2.9% and 3.2% [2006] respectively, and immigration, particularly into rural communities. Approximately 15% of the total population is foreign born, the largest foreign-born group being of Guatemalan origin. Rural households are slightly larger on average than urban households. Belize is ethnically diverse with the Hispanic/Mestizo population being the largest individual ethnic group. While English is the official national language, many speak as a first [often only] language Spanish, Mayan, Garifuna or Creole. The consultants are advised Spanish is the day to day language in the sugar industry. National Literacy Rates, defined as those aged 15 and over who can read and write is estimated at 76.56% by the Statistical Institute of Belize. Accordingly education and skills enhancement are important planks of GoB development and poverty eradication policy.

The age-dependency ratio is 0.82 implying a relatively high level of economic burden being placed on the working age population to care for vulnerable dependents at both ends of the life cycle spectrum.

Northern Region (Sugar Belt)

The Corozal and Orange Walk districts are the two (2) northernmost districts of Belize covering an area of 2,508 sq. miles and together they form the sugar belt. This area accounts for 27.4% of the total population in Belize and 56,300 or 38.8% of the 145,200 rural residents in the country. The sugar industry is largely concentrated in the rural areas of Northern Belize, and therefore plays a crucial role in the standard of living of almost 40% of the rural population in Belize.

In 2005, 40.5 % of the labor force in the Corozal district was employed in the primary sector, much above the national average of 22.1%. In Orange Walk, the figure was lower at 29.1% but was still much above the national average. Primary agriculture alone accounts for 38% of the labor force in Corozal and 25 % in Orange Walk, and is dominated by sugar, grain and livestock production.

The Sugar Sector

The reform of the EU Sugar Regime will significantly reduce export earnings of ACP countries that are highly dependent on sugar exports. The reduction in raw sugar prices will be phased-in between 2006 and 2010, with a 5% price cut in 2006/2007, a further 17% price reduction in 2008/2009 and the full 36% cut in 2009/10.

Corozal and Orange Walk, the two northern districts of Belize, are the districts to be most affected by the imminent changes in the sugar industry. These districts cover an area of 2,508 sq. miles and together they form the sugar belt, with approximately 60,000 acres devoted to sugar cane production. Sugarcane is grown by some 8,533 farmers, assisted by an estimated 10,000 workers. The average age of cane farmers is around 48 and of factory workers is around 30. Fifty percent (50%) of the farmers own land on which cane is planted while the 50% lease land from GoB with the intention of eventually purchasing. Most workers lease land from the GoB with the final objective of purchasing it. In some cases the workers are relatives of the cane farmers and they will eventually inherit rights to land either owned by cane farmers or GoB. Cane farmers and workers live in rural and urban communities in the sugar belt.

The bulk of the raw cane is transported by lorry trucks to a single sugar factory at Orange Walk which employs 419 workers.

Up to 1.2 million tons of cane is produced annually, yielding between 115,000 and 125,000 tons of sugar. Belize consumes about 10% of the sugar it produces and has traditionally sold approximately 50% of its sugar production to preferential markets, with quotas of 40,000 tons white sugar equivalent (42,000 tons raw) to the EU and 11,000 tons to the USA. The remaining sugar is placed as direct consumption sugar into CARICOM where the price is at a slight premium over the world market price.

It is estimated that the reduction in the price for sugar will result in some 1,790 small cane farmers leaving the industry and for whom alternative income generation would have to be provided. The price reform represents a loss of US21.7 million during the period 2006 to 2010.

The economy of the sugar belt is heavily dependent on the sugar industry. Other important agricultural contributors to the economy are grains, livestock and papaya production. Sixty two percent (62%) of the farms have other complementary but less important agricultural activities, such as the production of corn, beans, rice, coconut, onion, hot pepper, banana, pumpkin seed, tropical fruits, root crops, vegetables, sweet potato, and honey. It is estimated that 41.8% of cane farmers would be interested in diversifying their predominantly sugar farms for income generation.

Manufacturing is related to the export oriented sugar and papaya industries. Livestock and lumber processing are primarily for domestic consumption. The services sector continues to expand but is strongly dominated by wholesale and retail trade, and public administration. The Corozal Free-Zone on the border between Corozal and Mexico which offers wholesale and retail trade opportunities employs 3,100 workers. Tourism, including eco and rural tourism and related services, is gaining interest in the north and activities are slowly expanding. Construction is also a major source of employment as the local economy expands.

Donor Coordination

The EU is presently the only donor committed to supporting economic transition of Belize's sugar-dependent communities. Another major project funded by the EU (9TH EDF) is the Belize Rural Development Project (BRDP) which is presently being implemented at a total cost of 7 million Euro. It is anticipated that where appropriate projects and programmes developed for the sugar belt will complement and coordinate with BRDP initiatives, and draw upon the institutional capacity and experience already developed. It will also seek complementarities with non-EU funded projects such as the Social Investment Fund, UK-DFID, World Bank, European Investment Bank and the Inter-American Development Bank. DFID was very much involved in the design of Belize's Sugar Adaptation Strategy and therefore, they will be closely associated with the implementation of the sugar program. The attention of the consultants is drawn to [1] the on-going activities of the EU/GoB Banana Support Programme as a possible source of approach [2] recent publications/studies undertaken by or on behalf of Beltraide relating to the climate for investment in Belize and [3] on-ongoing studies regarding constraints to agricultural marketing.

The Sugar Adaptation Strategy

The goal of the Sugar Adaptation Strategy is "The existence of a viable sugar industry that continues to be a major contributor to economic growth and stability and social development in Belize". Two objectives of the strategy are "To foster diversification of the agricultural production base in the Orange Walk and Corozal districts and to minimize the overall macroeconomic impacts, as well as the economic and social impacts on the communities of the Orange Walk and Corozal districts that result from reductions in the guaranteed prices for Belize's sugar exports and competition in a more liberalized market. Two accompanying components will seek to address alternative uses of land and labor in other agricultural activities by cane farmers that are likely to exit the industry due to their inability to improve their efficiency in sugarcane production and compete at lower prices and targets those groups that will be affected but are unable to pursue alternative livelihood opportunities in other agricultural activities. In sum, an estimated Euro 10 million from the Accompanying Measures of Support (AMS) is available for first three years of the diversification programme.

Objective, Purpose & Results

Overall Objective

The overall objective is to provide alternative livelihoods opportunities and social and economic services and infrastructure in the districts of Corozal and Orange Walk as the sugar industry adapts to changes in the world market for sugar.

Specific Objectives

To [1] identify priority sectors offering economic diversification opportunities in the Districts of Corozal and Orange Walk as their economies adapt to change, (2) recommend areas for required social and economic services/infrastructure and capacity building, and (2) develop proposals for investments in the recommended areas for the development or expansion of the identified priority interventions.

Results

a) Sectors offering potential economic diversification opportunities identified and prioritized for the districts of Corozal and Orange Walk including, thereof, an analysis of the constraints to the development/further expansion of the identified sectors with particular attention to:

the macro enabling environment
the supporting public and private sector institutional strengths and weaknesses, and
the social and economic services and infrastructure needs

b) Based on the analysis provide recommendations on what measures/ interventions are needed to overcome these constraints, including recommendations on:

macro policy, legislative and regulatory changes
economic, education (including education and skills enhancement) and social services and infrastructure
institutional strengthening in terms of the supportive social, educational and skills enhancement, and economic infrastructure, and
the possible measures to assist people through economic transition and amelioration of the potential accompanying negative impacts.

c) An outline plan of action and specific proposals on how these recommendations can be implemented following the requirements of the Practical Guide to Contract Procedures for EC External Actions, including:

providing sound justifications of such proposals for investing at least 10 million Euro for the first three years of the economic diversification and social development programme and at least a similar amount for a subsequent three year period;
proposing partnerships and collaborative arrangements among key stakeholders, e.g. government bodies and organizations, private sector organizations, producer organizations, village councils, NGOs and community based organizations;

Assumptions & Risk

Assumptions

The main assumptions made:

people in Belize, and the target area in particular, wish to access alternative livelihoods and improved social services
opportunities exist for new and expanding businesses to tap into and for social services to be enhanced
the GoB is willing to alter the legislative and regulatory environment if required
Some case studies, projects and plans and lessons learnt are readily accessible.
resources will be available to implement important recommendations

Risks

the trading regime under which there is some protection for Belizean products collapse or are eroded very rapidly
potential beneficiaries
that cane farmers might not want to participate in unknown ventures,
Alternative commodities and other enterprise ventures require more intensive management and production practices which most cane farmers might resist.
Other risks identified are the lack of or limited cooperation by the beneficiaries of the Project to participate or disclose information
Any other venture would require investments which might not be readily available

Scope of the Work

The aim of this consultancy is to assist in the development of a programme to support access to alternative livelihoods, enterprise development, the strengthening of the social and economic services and infrastructure, and assisting the process of economic and social transition of communities in Orange Walk and Corozal.

The consultants will meet with relevant stakeholders in government ministries departments such as education, public works, national development and many more, rural and urban communities, business organizations, including those associated with agriculture, manufacturing and investment promotion, service providers and relevant public and private sector agencies. The consultants will lay particular emphasis on analyzing the roles of the financial institutions and informal sources of finance, and the legislative and regulatory environments regarding important areas of economic development such as land and labor markets, fiscal incentives, zoning/land use and planning and consent.

The consultancy must be conducted in a participatory manner. It is important to have potential beneficiary understanding and ownership of the proposals in the final report. Accordingly, it is anticipated that the consultants will undertake up to 8 consultations [4 in Each of Corozal and Orange Walk districts] and prior to submission of a draft final report, undertake two workshops, probably in Corozal and Orange Walk towns, at which they will present and explain their findings and recommendations and garner response.

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