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Red Stripe repatriation to boost local production 30% - Includes canned beer, but excludes Canada bottling

Published:Friday | February 19, 2016 | 2:00 AMCamilo Thame
The Red Stripe Jamaica brewery at Spanish Town Road, Kingston.

Red Stripe's plan to repatriate beer produced in the United States to Jamaica is projected to boost domestic production by 30 per cent, according to the local brewer.

The move is also expected to add just shy of 200 direct jobs, half of which are destined for the local brewer's cassava farms, and provide employment for an additional 3,000 indirect workers for outsourced cassava production.

When the Spanish Town Road-based brewer relocated the production of up to 3.5 million cases (approximately 280,000 hectolitres) of beer destined for the United States to the North American market in 2012, it cut more than 70 jobs.

By September, it will bring back that production to Kingston, including the canning of beer destined for the US and Canada. Bottled beers sold in Canada will continue to be produced in that North American market.

The increased employment should boost the Government's tax revenue by some $80 million based on just the 133 full-time positions to be created. Red Stripe should be able to credit the statutory deductions component about $30 million through the employment tax credit provision of new tax legislation.

Still, this hardly dents the $550-million income tax the beer maker pays on average each year, or the over $2.5 billion in special consumption tax it pays to the Government on its domestic sales.

The benefits to the beer maker really lie in the improved fundamentals of brewing in Jamaica.

Within the past four years, Red Stripe reduced its energy consumption by 50 per cent, through the construction of a cogeneration plant, and cut water usage by 17 per cent. It also upgraded its bottling lines, expanded storage, and lowered its import bill by growing cassava locally as an input for its beer.

Currently, five per cent of Red Stripe is made using cassava. It is expected that the proportion of beer made with the root crop will increase to 10 per cent of domestic output by the end of this year.

What's more, the beer maker expects to hit its target of making 20 per cent of its beer with cassava by 2020. This will require 48,000 tonnes of cassava annually, compared with the 17,800 tonnes currently produced in Jamaica for all purposes, including for making bammies.

Increase competitiveness

These improved fundamentals are expected to help Red Stripe maintain profitability in its export division, while it pushes sales in overseas markets by leveraging its new owner's (Heineken's) global footprint the Dutch-based brewer has a presence in over 150 countries.

"The repatriation of the US volumes will help to increase the efficiency and competitiveness of the Red Stripe brewery here in Jamaica," said Red Stripe in responses to Financial Gleaner queries on the effect the move is expected to have on profitability. "Our aim is to become a major contender as a globally recognised brand on the world stage."

The company's previous export drive boosted revenue from US$13 million in 2002 to US$40 million by 2007, but the brewer struggled to achieve profit sustainability, incurring operating losses of US$600,000 and US$2.8 million in 2007 and 2008; and attaining operating profit of US$2.1 million in 2009 before it fell to US$100,000 in 2010.

After migrating its US-destined production to that North American market in 2012, operating profit surged to US$8.9 million the following year. It fell to US$7.5 million in 2014 due to reduced beer consumption during the prolonged winter season and delisting in major supermarket chains in the US as well as pubs in Great Britain. Full-year volumes were slightly less in the US in 2015, when volumes were similar to year-earlier levels in the UK, but operating profit totalled US$8.7 million.

For the three months to September 30, 2015, operating profit for the company's export segment was flat on year-earlier levels at US$1.9 million.

camilo.thame@gleanerjm.com