JCEA lobbying for 3% money as coffee inventory builds, but EXIM unswayed
The central bank has maintained its policy rate at two per cent for the last two rate decision cycles, and treasuries are yielding even lower rates, reason enough, says the Jamaica Coffee Exporters' Association, for state lenders to cut the cost of credit issued to producers.
Coffee processors are seeking three per cent money from their go-to financier, EXIM Bank Jamaica, whose loans are currently priced at more than two times that level.
The bank also lends to the sector in 12-month cycles, meaning the processors have to repay borrowings within a year, but JCEA President Norman Grant, who says those loans terms are out of alignment with their current market cycle, wants an extension to 18 months. That's because Jamaica's high-priced coffee is in low demand and the inventory that exporters would normally have sold to service their loans is instead sitting in their warehouses.
The upshot, he said, is borrowers have to contend with an additional two percentage point penalty when they miss the loan-repayment window.
EXIM Bank, meanwhile, is pushing back on the criticism of its lending policy, saying its rates have fallen to 6.5 per cent, and further, that it is willing to negotiate with individual dealers over the cost of funds.
Grant wants the Ministry of Industry, Commerce, Agriculture & Fisheries to intercede on JCEA's behalf with EXIM to have the bank drop its lending rate to three per cent and expand the repayment window.
"The interest rate on loans from EXIM Bank for purchasing cherry coffee (nine per cent) is significantly higher than the benchmark T-bill rates, and the payback period is too short (12 months), especially in the current environment where we have excess inventory of JBM [Jamaica Blue Mountain coffee]," said Grant in a document presented to the ministry that urged more support for the coffee sector.
But EXIM's acting chief officer for trade and commercial lending, Seretse Bell - who asserts that the bank has been the primary lender to the coffee sector in the last 20 years and already issues funds to the sector at 6.5 per cent to seven per cent - also told the Financial Gleaner they have no record of loans issued at nine per cent to any member of the JCEA.
As for the 12-month loan repayment term, Bell said it "was more than satisfactory for the purchase and processing of cherry berries and the ultimate sale of the final product in the overseas market", and has weathered previous market fluctuations.
EXIM acknowledged that the inventory build-up was problematic for the trade, but said it was only prepared to adjust terms on an individual basis for borrowers who negotiate extensions on their loan repayments.
In the face of the bank's pushback, Grant said the JCEA would at least "like to see rates reduced to four-five per cent in the first instance - similar to the line of credit to the tourism sector, which was loaned at four per cent". The reference to tourism relates to a special $1-billion fund that EXIM is distributing on behalf of another state agency, the Tourism Enhancement Fund.
"In addition," he said, "because the market is now taking longer to close contracts, the period of repayment should be reviewed from 12 months to 18-20 months. Once there is a delay in payment due to delays in order, the rescheduling rate [on coffee loans] jumps two percentage points higher than the original rate, as a penalty charge."
Grant, who also runs one of Jamaica's largest coffee operations, Mavis Bank Coffee Factory, says the association is yet to get feedback from the ministry on its requests, but anticipates a good outcome.
"They have always come to the table with game-changing strategies that turn out to be a win-win," he said.