Mon | Jan 21, 2019

Cocoa Board lands big contract amid plans to retender assets

Published:Friday | April 20, 2018 | 12:00 AM
Cocoa pods hanging from a tree.
An open cocoa pod complements a cup of hot chocolate.

Several prospective investors have expressed interest in the cocoa assets owned by the Jamaican Government, but the Development Bank of Jamaica, DBJ, said this week that it will not be pursuing direct talks with any of them.

Instead, the state-owned bank told the Financial Gleaner that it will be placing the assets back on the market and plans to seek public bids later this year in its second attempt to offload them to a private investor.

The last deal, struck initially with the Michael Lee-Chin-controlled Wallenford Limited in 2014, collapsed before the transaction could close. The parties pulled out of talks in 2016.

"The main reason we withdrew was because we have our hands full with the coffee business and didn't want to take on another 'turn-around' type business at this time," Lee-Chin said on Thursday after the Financial Gleaner reached out to him for comment on whether he would make another try at the cocoa assets.

The investor's reference to coffee related to his 2013 purchase of Wallenford Coffee Company, an ailing operation acquired from the Jamaican Government.

Jamaica's cocoa beans are classified among the finest in the world, and amid the failed efforts to divest, the Govern-ment has continued to market the commodity to foreign buyers through the Cocoa Industry Board and Export Division in the Ministry of Industry, Commerce, Agriculture & Fisheries, or MICAF.

General manager of the Export Division, Byron Henry, says he has a budget of $65 million to upgrade two fermentaries - Richmond Valley in St Mary and the Morgan's Valley in Clarendon as well as pay farmers for product in order to deliver on a contract for 150 metric tonnes of cocoa beans to a buyer in Europe, which he declined to name.

Contextually, the order is large relative to the sector's marketable output, which amounted to 290 tonnes of processed beans in 2016. The data for crop year 2017 is not yet available.

The Export Division and Cocoa Industry Board will cease to exist in their current form by October, when their oversight functions are fully merged into the newly created super-commodities agency called the Jamaica Agricultural Commo-dities Regulatory Authority, or JACRA - a process that is already under way. In the meantime, the commercial operations of the boards are being privatised.

Henry also noted that the remedial work on the fermentaries, projects that are already in progress, was also being done with privatisation in mind, saying the plants were being placed "in a state of readiness, so that if and when the private sector takes over, the foundation is laid to move on".

A number of unsolicited

bids were referred to the Development Bank of Jamaica by MICAF over time, according to Permanent Secretary Donovan Stanberry. However, Stanberry declined to identify them.

Asked about the prospects of talks with the various interests, DBJ, which is the divestment agent for the Government, said Tuesday it was sticking with its plan to retender the assets this year, once it finalises a new privatisation strategy.

"Once that is finalised ... the private sector will be engaged and asked to provide bids. As far as DBJ is aware, MICAF and the DBJ have received several unsolicited expressions of interest for the cocoa assets. At this time, we cannot disclose the parties who provided same, given that the Government may pursue a new competitive process," it said.

However, the development bank is yet to comment on what changes it has made to the divestment plan to avoid another failed effort at closing a sale.

Fighting frosty pod rot disease

Henry said his division is focused on crop yields to meet current market obligations, and is offering technical support to cocoa farmers to help contain the frosty pod rot disease.

"Yes, there is a push to increase productivity, but that push, as we speak, is mainly against the background of a disease which has been affecting the cocoa industry - frosty pod rot. We are trying to contain the disease and reactivate a very robust marketing programme for cocoa," said Henry.

"While all of this is taking place, the Government is planning to divest the entire cocoa industry to private interests. The Cocoa Board is now a part of JACRA, which is a regulatory body. The commercial arm will be divested," he affirmed.

The past divestment programme included fermentaries in Clarendon, St Mary, and Hanover; nurseries at Sunning Hill, Osbourne, Spring Valley and Water Valley; and cocoa plots at Richmond, Haughton Court and Morgan's Valley. The last set of financial data released for the Cocoa Board was in fiscal 2013, when the carrying value of its fixed assets was estimated in that year's Jamaica Public Bodies report at around $560 million.

Through the Cocoa Board, Jamaica is a member of the International Cocoa Organisation, which recognises 17 countries as producers of fine or flavoured cocoa, and is recognised as one of eight exclusive producers of fine or flavoured cocoa.

The Cocoa Board is the sole marketing agent for Jamaican cocoa, but that will change under the JACRA regime, which will be issuing dealer and export licences to sector operators.

Currently, the processed beans, which are polished and graded to the requirements of purchasers, are exported primarily to Europe, Japan and the United States. A small quantity of beans is sold to the local market.