Seprod to invest $5b in palm oil business - Food manufacturer consolidates while building capacity and foreign markets
Diversified food manufacturer Seprod Limited is pumping up to US$40 million or approximately $5 billion into a new venture to produce palm oil in Jamaica with plans to build a new processing plant and establish a network of farmers to grow palm trees commercially and sell the fruits to the company for crushing.
Chief Executive Officer Richard Pandohie told the Financial Gleaner in an interview that the venture was part of an ongoing move to enhance production capacity at the company headquartered off Marcus Garvey Drive in Kingston.
The venture is to be financed from borrowing, especially considering the large upfront financial commitment required. Seprod already has some $3 billion in bank loans, recently promoted company secretary and Chief Financial Officer Damion Dodd disclosed.
The business model for the palm oil project will be based on the contract farming arrangement which beer maker Red Stripe has in place for the growing of cassava, the new input to its beer brew. It will also be similar to the system utilised by poultry and pork distributors Jamaica Broilers and Caribbean Broilers, Dodd noted.
The plan is to have a minimum of 1,000 acres under palm cultivation to feed the processing plant, construction of which is expected to start by September. There is a three-year lag between planting and a final product rolling off the processing line.
“We have a team heading off to Central America in the next three weeks” to view palm oil operations there, said Pandohie. “This project is something that has been approved and we going to be moving very strongly on that,” he said.
Family-owned conglomerate, Musson Jamaica, once run by the late Desmond Blades and now led by his grandson, Paul B Scott, owns a large stake in Seprod, as does the Coconut Industry Board. The new palm business is expected to attract the interest of existing coconut growers.
Seprod meantime is at the end of a more than US$100 million — nearly J$13 billion — investment over three years in plant upgrade that has also seen the start-up since December 2017 of a new grain mill producing flour and cornmeal at the Jamaica Grain & Cereals plant, under joint venture with Seaboard. Seprod is looking to derive more than 50 per cent of business for the new milling operation from outside Jamaica.
Pandohie says Seprod now makes most of its money from dairy through its Serge Island Dairies subsidiary but is looking to grow other segments including edible oils, grains and milk processing.
And having taken over the former Nestle plant at Bog Walk in St Catherine in 2016, which it previously managed under contract, Pandohie said production there has moved from 30 per cent of capacity to 50 per cent. Already that plant is doing contract production for other companies including firms in the United States.
With innovation and new product development at the core of the Seprod growth strategy, shipments of new products, including its Supligen brand, are now entering markets in the US and the United Kingdom, and are poised to go into Canada soon. Panama is also among its next frontiers.
"Jamaica is revered there. They want Jamaican products," Pandohie said.
He stressed that Seprod is focusing on value added, decommoditising the business, and pushing Seprod brands even as the business consolidates.
Last year, the company sold off its soap-making business to Blue Power Group and bleach production to Paramount Trading. It is also spending an additional US$15 million - about J$1.8 billion - to house its distribution and back-office subsidiary International Sales Limited at its main Felix Fox Boulevard complex in Kingston.
Buoyed by a one-off sale of shares, primarily GraceKennedy stock, for the year ended December 2016, Seprod saw a $2 billion, or 15 per cent, rise in revenues, which translated to a 76 per cent jump in profits over 2015 to $1.6 billion.
Pandohie said some areas of the business, including its Golden Grove sugar segment, continue to underperform, although the losses have slowed. Expectations that refined sugar sales to Caricom could plug the holes in that segment have been stymied.
"Years ago, we spoke to the Government about a plantation-wide refined sugar plant in Jamaica. We can't do that without policy in place to support it," said the Seprod boss. "Somebody is now going to do that in Belize, so it doesn't make sense to do it here anymore. We keep missing opportunities because we take too long to make decisions," he said.
As Seprod's boss since early 2015, Pandohie, 48, views his role at Seprod as a "legacy assignment" where he can contribute to the country's growth agenda. He is convinced that not enough attention is given at the highest policy level to agriculture and the related processing industry, noting that value-added agriculture, with a multiplier effect for farmers, can be an effective driver of economic growth.
Three years into his tenure at the helm of the manufacturing and distribution group, he is tightening Seprod's organisational structure to drive output, and creating its next cadre of leadership. This includes employing 30 interns last year, reduced top-management positions, augmenting middle management, and seeking dialogue with trade unions to drive productivity among Seprod's 1,000 workers.