Import bias in molasses pricing irks supplier

But CMCo says 'it's the best we can do'

Marcella Scarlett, Business Reporter

Golden Grove estate is one of the smallest players in the sugar sector, but it is backed by a manufacturing powerhouse with clout, and parent company Seprod Limited has signalled that it wants to shake up the molasses market.

The supply and marketing of the syrupy sugar cane by-product is cartelised under the Caribbean Molasses Company Limited (CMCo), which buys up all the molasses produced in Jamaica for resale to distilleries and other users. When supplies fall short, CMCo imports the syrup to make up the shortfall.

Seprod Chairman Paul Scott has raised the issue of fairness in the pricing structure.

Local molasses suppliers, which includes Golden Grove, are paid US$119 per tonne by CMCo, but the agency pays a higher price of US$180 per tonne for imports - a disparity of US$61 or 52 per cent. The molasses prices convert to J$10,700 and J$16,200, respectively, at spot rates.

"This pricing is illogical and really is a by-product of the state-run factories unintentionally selling subsidised molasses to private-run distilleries," Scott said, in a statement to Seprod shareholders published in the newly released 2011 annual report.

Golden Grove is 55 per cent owned by the industrial group.

"As a private seller, it is our objective, both as a seller of sugar and molasses, to obtain the highest possible price. Therefore, this situation is not sustainable. Either we receive the best price - equal to that of the landed cost of the imported molasses - or we will seek alternative uses or buyers for our molasses production," said Scott.

better market

Scott has signalled that Golden Grove is on the hunt for new markets to secure a better return on the product. Seprod has not responded to requests to comment directly on this story.

Seprod's position is getting pushback from CMCo, which says Golden Grove may find it harder than they think to supply molasses to export markets.

Lloyd Forbes, head of the Spirits Pool Association, which owns CMCo, said local factories are receiving the "best" price for their molasses.

"If they want to find other markets to sell it to, they can go ahead and sell it. Selling it to us was just a matter of convenience," he said.

"If they sell it overseas, they would have to pick up all the freight and customs fees. They are not the first ones to have raised such a question; several before them have, but I think they should research it properly before they make any announcements."

Forbes said local factories are not able to supply all the molasses demanded by the rum industry, which forces CMCo to tap the world market for supplies.

The price disparity, he said, is due to shipping and customs fees.

Worthy Park Estate, which is a producer of sugar and molasses, as well as a rum distiller, agrees with CMCo's take on pricing.

"The only difference that is created by that is the cost of transportation. The local ones is just as competitive as the international one," Gordon Clarke, a director and distillery at Worthy Park, said of the pricing disparity.

"If it is bought locally, yes, we pay a lower fee because we don't have to factor in cost for transportation. All that is done is arrange to transport the molasses to the customer," he said.

"It would basically cost about US$50-US$60 per tonne to transport the molasses to another Caribbean island, plus additional fees for handling at the ports, so it doesn't benefit you really to sell the molasses overseas."

In the past two years, 2010 and 2011, Jamaica produced 57,813 tonnes and 59,951 tonnes of molasses, respectively, according to data from the Sugar Industry Authority. Import data was unavailable.

In 2009, CMCo purchased 99,262 tonnes of molasses - 53,916 tonnes from Jamaican factories and 45,346 tonnes of imports, according to CMCo Chairman Evon Brown in a 2010 submission to the Commission of Enquiry on the Sugar Industry that was meant to guide the reorganisation of the sector after its privatisation.

In 2008, of the 81,079 tonnes purchased by CMCo, 21,231 tonnes were sourced from overseas.

Caribbean Molasses' main function is to procure good quality fermentable-grade molasses to satisfy the needs of the rum industry, Brown had said in his 2010 submission. He also said that the company is owned by the distillers and operates on a non-profit basis with its costs being borne by the distilleries in the final price they pay for molasses.

CMCo sells to distilleries at an undisclosed mark-up.

"On the face of it, it may appear as if they are receiving a lower price, but they are not," said Forbes, offering an explanation of the pricing system.

He said the local rate for molasses is based on the New Orleans/ Houston pricing system and "is adjusted for overseas handling and throughput charge and a 50 per cent freight charge allowance.

"Based on a very recent transaction, the freight charge to New Orleans is US$42.50 and we give them a credit of US$21.25," said Forbes.

CMCo provides transport for the molasses from the factories to its storage points. It charges the factories J$1,400 per tonne for transportation services.

Forbes said there is no issue with the quality of the molasses supplied locally or internationally.

In 2010, Brown told the sugar commission that the local suppliers are required to supply good "black strap molasses with minimum brix of 85 per cent and tel quel sugar", while the quality standard for international supplies was "a minimum of 52 per cent sugars and 85 per cent brix".

Brix is a density scale, which measures sucrose content. Tel quel is industry-speak meaning 'as received'.

Three of six sugar estates in Jamaica also operate distilleries - Worthy Park, Appleton and Everglades.

business@gleanerjm.com

Import bias in molasses