Salada developing 100% Blue Mountain coffee brand for US market
Coffee processor Salada Foods Jamaica Limited has lined up a new specialty product for distribution in the United States as one measure to grow export earnings that currently contribute less than a fifth of revenue.
The company also continues to weigh a more dramatic move, that of shifting its manufacturing base to a different country, having made no headway to date on a fight over the cess it pays on its business operations, but has indicated it is unlikely to pull that trigger any time soon.
Salada is looking to sell premium roasted and ground products under a new brand, which General Manager Dianna Blake-Bennett says will be unveiled later.
The brand will comprise 100 per cent Blue Mountain coffee, suggesting that it could hit the market at a high price point. The coffee executive believes the company can sustain inventory for consistent production of the new products through bean purchases from farmers.
The company, the maker of Mountain Peak instant coffee, is exploring new avenues for revenue to offset the cess paid to its regulator, the Jamaica Agricultural Commodities Regulatory Authority (JACRA), on different aspects of the operation – charges that range up to US$2.40 per kilogramme of beans.
Since JACRA instituted the charges in March 2018, Blake-Bennett says Salada has paid out $70 million to the regulator.
“We are looking at the use of more Blue Mountain coffee by launching new products in export markets, chief of which is the United States,” Blake-Bennett said.
While sales have been improving for the coffee maker, the latest iteration of which was a three per cent uptick to $770 million over nine months for this fiscal year, this has been despite significant increases in production costs, occasioned by the cess and rising prices for local coffee.
Salada’s cost of sales rose to from $456 million to $503 million. Concurrently, its gross profit slipped 10 per cent year-on-year.
Blake-Bennett says the company continues to lobby the Ministry of Industry, Commerce, Agriculture & Fisheries, MICAF, to reduce the rates charged under the cess on coffee operators, which she says is disadvantageous to local manufacturers. Salada is the only maker of instant coffee, but the market has a number of processors who distribute roasted and ground coffee.
In the past, the coffee processor has said the cess had served to push up the selling prices of Salada’s products. Prices were increased six per cent in January.
However, JACRA is signaling that the charges are not under review.
Acting Director General Gusland McCook told the Financial Gleaner that there were consultations prior to the implementation of the cess and “the sums being charged were agreed to by those stakeholders”.
Adjustments to the cess would require legislative action by Parliament, he said.
MICAF has not responded to requests for comment.
Salada, meanwhile, is still reviewing the possibility of shifting its manufacturing operation to another Caribbean country, saying it remains “a consideration if there is no workaround”.
The company is also pushing for adjustments on the quota of Jamaican beans it is required to use in its blends. The quota was raised in February from 20 per cent to 30 per cent, which, in turn, would have meant an increase in the cost of the company’s inputs as Jamaican coffee is more expensive.
The company’s bottom line is feeling the effects.
In the nine-month period ending June, Salada’s profits shrank 17 per cent to $114 million, a performance Chairman Patrick Williams linked to the cess. Up to that point, the company had paid out $56 million to JACRA, he said in a statement appended to the company’s earnings report.
Williams added that Salada was banking on increased marketing efforts both for the local market and exports to grow earnings.
Blake Bennett said the new 100 per cent Blue Mountain is due for rollout between October and December 2019.
Specialty products command 55 per cent of the estimated US$48-billion American coffee market, according to the National Coffee Association of America.