Steven Jackson, Business Reporter
Plans to import chips, but not fruit
Jamaica Producers Group (JP) may lose five per cent of its annual revenues or some J$350 million because of Hurricane Sandy damage to its banana crop.
That is unless JP can tweak more value from its other businesses, said Jeffrey Hall, managing director of JP, in a phone interview Tuesday.
The company says diversification of its manufacturing base outside of Jamaica, along with new revenue streams, has mitigated its exposure to Sandy.
"Between 85 and 90 per cent of the crop was destroyed," said Hall of the October 24 hurricane that killed one person, damaged infrastructure and levelled crops.
Overall damage to agriculture rose to J$1.5 billion up to Tuesday, but may go higher as damage assessments contine.
JP controls four-fifths of total banana production in Jamaica, and the value of this biological asset lost would total some J$30 million to J$40 million written off the balance sheet, he said. The amount purposely reflects a small amount for the group, which holds J$4.7 billion in equity.
"We took the aggressive stance to write down our assets to mitigate against the risk to avoid situations like this," Hall told Wednesday Business.
"We think this loss is significant, but the damage to the crop is less than one per cent of our net worth."
Hall explained that the group took the decision following a previous millennium hurricane to effectively reduce the value of these assets by heavily depreciating them to reduce the risk exposure in catastrophic events.
It was done in part because of the group self-insuring its crop and thus absorbing the risk.
"Our group has found it more economically attractive to diversify our business rather than to buy crop insurance," he said.
But greater damage lies in the lost potential revenue arising from the banana assets.
"It will be about five per cent," he said. "But I hope we can make it up with other revenues."
Five per cent of the J$6.2 billion in annual revenues recorded last financial year would total some J$350 million. Hall agreed that the loss to the group could equate to J$350 million if other business segments did not increase revenues.
Contextually, two-thirds of total revenues come from the JP Europe Division, which operates within a depressed European market — the implication being that increasing revenues may pose a challenge in other divisions.
JP Tropical, which includes the banana operations, utilises the crop for fresh bananas and secondly for chips in the snack operation. The division earned J$1.5 billion in its latest full year of operations.
Hall said it will take roughly six months to reap replanted crop. In the meantime, JP will import banana chips from its factory in Dominica Republic, but Hall stressed that the company will not import fresh bananas to fill demand.
"JP has never imported a single banana into Jamaica and we have no plans to do so now," he said.
Its pineapple crops were mostly unaffected by the hurricane.
JP, whose core business was once banana exports, gave up on that aspect of the business following devastation of its fields from multiple storms between 2004 and 2008.
The conglomerate gave up on exports after Huricane Gustav but last year resumed small scale shipments to the Cayman Islands.