Coffee blenders pressured by quota rule - Traders undercut by imports of finished products
The one-fifth rule that was supposed to protect the coffee industry from imports is not working as intended, Wallenford Coffee CEO Mark McIntosh has charged.
Instead, it has driven up the cost of business for local processors and made one of their primary markets more vulnerable as a result, he said this week.
Last year, the agriculture ministry stipulated 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.
It should have increased demand for Jamaica Blue Mountain and non-JBM coffee, which the ministry says was its intent.
But local traders like Wallenford and Salada say not only does the stipulation provide loopholes for imported finished products, with which they also have to compete, but the cost of producing their blends has also gone up.
Both companies, as well as other industry sources polled for this story, say foreign importers of finished products into Jamaica currently have a market advantage over them as they don't have to buy high-priced Jamaican coffee.
"Most of the imported coffee sold by Jamaican companies was already blended with Jamaican coffee. However, with the requirement for a minimum 20 per cent across the board, the result is that local companies now have to use more coffee that costs as much as four times the landed cost of imported coffee," said McIntosh.
Additionally, Jamaican companies pay a cess on imported green coffee and duties of 20 per cent to 40 per cent on imported roasted coffee. The Jamaican company also has to pay a cess again when the imported green coffee is roasted.
The hotels that form a large part of the coffee sector's customer base have been resistant to any efforts by processors to increase prices, giving the sector few options to recover their costs, McIntosh noted.
"Where the company has a long-term contract with a hotel customer, the coffee company is forced to sell at a loss. Where there is no contract, the hotel will reduce their orders for coffee because of the price increase," he said.
General Manager of Salada Foods Jamaica Limited, Dianna Blake-Bennett, told the Financial Gleaner that the company, which is largely a blender of coffee products, pays US$1.52 per pound for imported coffee, while non-JBM Jamaican coffee costs US$2.52 per pound.
Salada requires 700,000 pounds of coffee for its operations annually. Now, it is also paying the cess on coffee imported for blending.
"Salada has been seriously affected, as the implementation of the cess has increased the cost of manufacturing by 41 per cent, so the protection for local coffee has negatively impacted manufacturing of the product," Blake-Bennett said.
"The cess on imports has equates to an additional US$1 to finished coffee products ... . The current regulations favour imports over manufacturing, that is the message being sent by Government," she said.
Speaking in his capacity as president of the Jamaica Coffee Exporters Association, JCEA, Norman Grant said the data collected so far from members bears out the complaints.
"Some members are reporting that it has impacted negatively on existing long-term contracts, hence they are selling the roasted coffee at a loss or at a significantly reduced margin," said Grant, who also heads the Mavis Bank Coffee Factory Limited, a sister company to Wallenford.
This has forced some members to try and source cheaper imported coffee to do the blends, with limited success, he added. The JCEA intends to engage the Ministry of Industry, Commerce, Agriculture & Fisheries and the Jamaica Agricultural Commodities Regulatory Authority on the issue, once all the data have been collated and analysed, he said.
Channel cess into marketing
Grant said it would be helpful to the industry were the Government to pump back the cess into marketing, research and development, and initiatives to increase production, thereby defraying some of the costs faced by individual operators.
"The Jamaica companies have always used Jamaican coffee in our blend and we support the extension of the framework to include non-JBM coffee as well. However, the import cess now being charged on coffee should be used for production and marketing support to increase results in these areas," the JCEA president said.
However, Donovan Stanberry, the permanent secretary in the ministry overseeing agriculture, says private traders should be the ones taking the lead in any marketing effort.
McIntosh points out, in the meantime, that foreign companies have been getting around the import duties by sourcing coffee from within Caricom.
"So, with the new cess on roasted coffee, the foreign company will see an increase in cost, but their increase will be less than the increase faced by Jamaican companies," he asserted.
It's for that reason that another coffee trader, who requested anonymity, is suggesting that processors should start looking at the possibility of manufacturing outside of Jamaica and importing the finished product.
"They have introduced a law to kill us," the person said, while insisting that the quota rule is not as helpful to farmers as intended, as "they largely produce small quantities of Jamaican coffee at high cost".