Sat | Feb 22, 2020

Salada still hurting from coffee cess

Published:Friday | May 17, 2019 | 12:31 AMNeville Graham - Business Reporter

Fresh from an industrial accident which saw flat profits, Salada Foods CEO Diana Blake-Bennett says her fears of further fallout have been realised from the imposition of a cess on green beans imported for its instant coffee business.

For the six-month period ending March, the coffee processor barely grew revenue, from $482 million to $494.5 million, a three per cent uptick, but profits were down 33 per cent, from $80 million to $54 million.

“We are where were last year in terms of revenue,” said Blake-Bennett. But: “Our operating costs have been affected by the cess which, up to our six-month reporting period, we would have spent $37 million that we never spent last year. This simply eats into the bottom line, since it adversely impacts profit margin from cost of sales. In fact, if you were to add back that to cost of sales, we would be right back where we were last year,” she said.

Still, the coffee executive sees bright spots in the second-quarter results – profits increased from $53 million to $76 million – which indicated the company had recovered from the boiler accident at the end of last year.

“Recall, our first-quarter results were not as healthy as we would want because of the accident, so we’ve really done well to regain ground, because we had negative profits,” Blake-Bennett said.

Salada and other companies that deal in four commodity categories – coffee, cocoa, coconut and spices – are charged a cess on different aspects of their operations, which funds the operations of the regulatory agency that police them, called Jamaica Agricultural Commodities Regulatory Authority (JACRA). The cess ranges from US$0.18 to US$2.40 per kilogramme, with coffee facing the highest charges.

Payment of the cess by a grower, processor, manufacturer, importer or exporter is due 10 days after the sale of the product. The charge doubles if the entity fails to adhere to the payment schedule. They must also file annual sales records with JACRA, for which a breach incurs a fine of $3 million.

Th charges were imposed on the sectors back in 2018. The regulator has also changed the quota requirements for coffee processors, requiring them to use at least 30 per cent of Jamaican beans in their blends, up from 20 per cent.

Blake-Bennett says while Salada understands the need to protect the integrity of the coffee on the Jamaican market, the change in the formulation is making life difficult for her company.

“What we’re saying is that we are in a unique position, in that we’re the only instant coffee manufacturer in Jamaica. The Government may want to argue that there are those who will want to package roast and ground coffee and pass it off as Jamaican to hotels, but we are in a totally different category,” Blake-Bennett said.

Salada wants an exemption from the new quota requirements, but JACRA is still attempting to finalise its leadership and has been in flux since its January 2018 operational launch, making talks difficult.

“The regulatory body has changed. The matter of who chairs and who runs the place is a moving target, There has been three chairmen in the space of a year, and two acting directors general. Every time they shift there, we start at zero,” Blake Bennett said.

“We continue to argue with the regulators to see our position, but at the same time we must continue to deliver shareholder value, and we believe that new product implementation is the way to go,” she added.

JACRA’s current acting director general is Gusland McCook, while Dennis Boothe was appointed chairman last December.