Salada under pressure as market adjusts to cess, quota
Published:Wednesday | June 20, 2018 | 12:00 AM
Import rules around coffee, plus the new commodity cess imposed by regulator JACRA, have put instant coffee processor Salada Foods Jamaica Limited in an uncomfortable spot.
Not only has local coffee prices risen by 100 per cent and more, depending on the grower, there is a shortage in the market, which means Salada is unable to source the 20 per cent quota of Jamaican coffee mandated by the Government for its operations.
And while the company can import to supplement its needs, that requires a permit which will only be issued if the local quota has been acquired, according to General Manager Dianna Blake-Bennett.
In April, Salada, the maker of Mountain Peak instant coffee, was paying US$2.52 per pound for Jamaican green beans.
But on Tuesday, Blake-Bennett told the Financial Gleaner that large growers, who are the main source of supply, are now keeping the beans for their own operations, or selling as high as US$5 per pound.
"What is happening now with the 20 per cent requirement is a shortage has been created. The major farmers, people like Wallenford, also process coffee. We get some from the little man, but that's not enough," said the coffee executive.
"We are purchasing from larger players [but] instead of them bringing in the required quantities of imported coffee, because of the cess, they have decided to use from current stock. It has created a shortage and in any economic situation, once there is a shortage, there is a price increase. We are paying as much as US$5 per pound for coffee."
The cess referenced by the Salada general manager relates to charges imposed in April on six commodities, including coffee, by the Jamaica Agricultural Commodities Regulation Authority, to finance its operations. Coffee importers now face fees ranging between US 18 cents and US$2.40 per kilogramme for different categories of the product.
The quota rule set last year by the agriculture ministry stipulates that traders who buy green coffee from abroad must include at least 20 per cent of local coffee in their formulations for processing and resale.
Mark McIntosh, the vice-chairman of Wallenford and Mavis Bank companies, which represents the biggest local coffee combine, acknowledged the shortage of coffee, while quoting prices for its beans that were even higher than Salada says it is facing.
"I don't know what they pay for coffee. But the grade of coffee they would use in instant sells for about US$6 to US$8 per pound. And there's not much of it. [I] doubt there's enough to meet their requirements," McIntosh said.
Salada, which is largely a blender of coffee products, requires 700,000 pounds of coffee for its operations annually.
New rules and charges
Under new rules set by the Jamaican Government, the aim of which is to cast a protective blanket over the farmers of local coffee, importers must first show evidence of having the 20 per cent minimum quota in the warehouse before receiving import permits.
Blake-Bennett said the new rules and charges, and the changing market dynamic they have spurned, have led to a two-month delay in Salada's import schedule.
"We have been complying with cess payments. But there is still delay in the process of trying to get permits. Our warehouse is inspected when we request a permit. We are expected by JACRA to ensure that we have the required amount of local coffee. If we don't have it, we can't get a permit," said Blake-Bennett.
"For every shipment, local stock is examined before granting an import permit. Right now, I am behind schedule by about two months," she said.
As a result, she added, Salada is behind on production volumes for its finished products by around 60,000 pounds.
Blake-Bennett explained that the company brings in products on a just-in-time basis because it wants to benefit from the periodic changes in commodity prices.
"When we bring in coffee, based on sales demand, production carries us for two and a half months. We must have it on time. Coffee is a globally traded commodity. We don't want to import a large volume at once and the prices fall and we could have benefited from that," said the Salada general manager.
For the first six months of its 2018 year, Salada has reported positive results, with revenue and profit on the increase, but between the cess and the shortages, Blake-Bennett expects Salada to experience losses of 20 per cent by year end.
"We just brought in nine containers with about 41,000 pounds of green beans each, and the bill for the cess alone was $32 million," she said.
"The bigger point is that the country does not have the volume of coffee required. We can't meet the volume at the price. What are we protecting as a country?" she asked.
Blake-Bennett otherwise spoke of discriminatory treatment against Salada, saying it was the only processor to be put through certain quality tests by regulators.
"Some of the things that happen to Salada don't happen to anybody else. Our new brands, they cup our products before we can get the go-ahead to import - and they grade it. They don't do that for others," she said.