Shake-up pending at commodity boards

Avia Collinder, Business Writer

The final version of a report released June 29 has found that all but one of the four commodity boards, as well as the Export Division of the Ministry of Agriculture, are lossmakers, weighed down by high administrative costs and large overheads.

But it also found that the commodity boards - coffee, cocoa, coconut and banana - are all reporting surpluses on their trading accounts.

The exception to the general lossmaking trend is the Coconut Industry Board, which derives two-thirds of its revenues from interest income and dividends.

The Ministry of Agriculture, as a result of the study which it commissioned, plans to rationalise the boards, which includes stripping them of their marketing roles and merging the coffee and cocoa agencies and the export division into one body.

The coconut agency will remain a separate entity, but stripped of its statutory regulatory powers and repositioned as a growers association.

Likewise, it is proposed that Banana Industry Board is to be disbanded and its residual assets liquidated, and the proceeds used to seed a new insurance fund or another funding facility to benefit banana farmers.

Cabinet approved the plan back in February, according to the ministry, which is still to finalise a timeline for the rationalisation programme.

"It will take at least a year because legislative changes are involved; these cannot be done overnight," Permanent Secretary Donovan Stanberry said Tuesday.

"We have taken on someone with experience in organisational development and mergers who will pilot the entire process, legislation, organisation structure, staffing and divestment. We expect that within a year we will see the transition," he said.

Stanberry did not identify the consultant, saying he was yet to sign his contract.

Finding Synergy

The commissioned study proposes that the marketing role of the boards be taken up by Commodity Marketing Corporation, which will work along with and provide wholesaling services to newly created producer marketing organisations.

The transition as proposed will be financed by increasing duties on competing imports.

In separate commentary on the planned merger of the coffee, cocoa and export divisions, the finance ministry said in May that "it is expected that the synergy between the commodity boards will have a positive impact on staff costs, which is the major contributor to the boards overall expenses."

The finance ministry's Public Bodies Report notes that the Coffee Industry Board alone is projecting an operating deficit of J$91.62 million for its fiscal year ending July 2013.

"The declining production output is expected to contribute to reduced inflows from shipping fees and industry cess. Notably, compared with revenue inflows, staff costs are expected to remain high," the Public Bodies report said.

Meanwhile, the agriculture ministry study claims that all commodity boards that are engaged in trading are carrying high raw commodity inventories, which is probably due to each being the buyer of last resort, the holding of crop liens, and other factors.

With respect to non-trading assets, it is evident, the report states, that the commodity boards have assumed the role of fund managers in some cases, and, in some cases, the commodity boards' real estate assets are jointly owned with other industry interests.

The study, titled 'Consultancy to Rationalise the Institutional Arrangements and Functions Governing the Production and Export of Selected Agricultural Commodities', was done by FocalPoint Consulting Limited a year ago but was just made public two weeks ago.

The coffee-cocoa-export division merger is meant to produce the commodities as competitively as possible; to enter new markets and maintain share in current markets; and to generate acceptable levels of return from investment, the report said.

"The one thing that is clear is that there will be a strong separation between the commercial and regulatory functions; Government does not belong in marketing," said the ministry's chief technical director Marc Panton.

"All will be regulated through a single board. We are advanced with the divestment of coffee assets; we are doing the same with cocoa. Our job is to involve the private sector," he said.

The report indicates that combined spending by the commodity boards in 2009-10 was in the region of J$41.82 million. And it highlights the precarious financial positions of the agencies in relation to their trading activity as well as the performance of funds they administer.

The Export Division and the Cocoa Board incurred net deficits in the periods reviewed 2006-2010. The Coffee Board recorded a profit, "but this was due to a surplus in the pension plan being written back in that year, which should be considered to be an extraordinary item," the report said.

The Coconut Board made 65 per cent of its income from dividends and interest on its investment portfolio; its other revenue lines include a cess on the importation of coconut oils and coconut by-products.

The report suggests, however, that the cess should be reviewed.

The consultants also recommend that given their financial position the rationalisation of the commodity boards should move from the current supply-based model to demand-based operations.

In other words, the 'order book' for the respective commodities and related value-added products will determine how much production is required in each case.

"Accordingly, a boost in sales should trigger a commensurate increase in production," FocalPoint said, while recommending that the process be partly financed by an "increase in the rates of the discretionary duty waivers on the imports of certain products", including carbohydrate-based snack foods; caffeine-based beverages; externally processed and packaged spices; vegetable oil-based products; and chocolate-based confectionery.

New business model

The consultants also recommend that the extension services provided by the commodity boards, such as research, disease mitigation, disaster recovery, and in some cases transportation, be delivered instead by disaster agencies or as value-added services that contribute to the overall viability of the commodities.

"In other words, the business case for a commodity should not hinge on the provision of subsidised services," said the report.

The merger of the boards will require the repeal of several pieces of legislation, including the Coconut Industry Control Act 1945; the Banana Board Act 1953; the Cocoa Industry Board Act 1957; and the Coffee Industry Regulation Act 1948.

The Agricultural Produce Act is also likely to be updated and amended to include any regulatory provisions the repealed legislation might dislocate.

FocalPoint also suggests that the proceeds of the Agriculture Development Fund be used to seed a venture capital fund administered by the Agro-Investment Corporation.

Stanberry said the full Focalpoint report made some broad recommendations "which have largely been accepted", and that the next step would involve fleshing out the details. He indicated that the ministry may choose a different path for the restructuring of the Banana Board.

"Focal said that it should be scrapped. The problem is with the demise of BECO, the growers association are not yet capable of handling what needs to be done. This is why we are working to strengthen them," he said.

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