Sun | Dec 11, 2016

Refined sugar market collides over imports

Published:Friday | November 14, 2014 | 12:00 AM

JMA, GK oppose import monopoly for state agency SIA

Tameka Gordon, Business Reporter

On one side of the emerging hostilities, the overseers of the refined sugar market say loopholes in the import policy has led to abuses; on the other side, private operators say the State, by attempting a takeover of a commercial trade, could add to their cost of doing business.

Manufacturers have vowed to resist the plan to reinstate the Sugar Industry Authority (SIA) as sole importer of refined sugar - a proposal of newly minted Agriculture Minister Derrick Kellier.

Jamaica does not produce refined sugar. Under current policy, manufacturers who use the product as input are allowed to import it duty-free. But under the new proposal, SIA will source the product and distribute it locally.

The Ministry of Agriculture has charged that manufacturers have been reselling the product to retailers at a profit to them but at a loss for Customs. Giving SIA sole responsibility for imports is meant to square the circle.

"Many of our manufactures will not take up the consideration. They will not purchase sugar from the SIA," said Metry Seaga, the deputy president of the Jamaica Manufacturers' Association.

"They will close their factories before they do that, and I have gotten that word from many large companies in Jamaica," he told the Financial Gleaner.

Meanwhile, CEO of GraceKennedy Limited, Don Wehby, has criticised the Government's handling of the issue, saying consultations usually occur before such changes are broached.

no to supply monopoly

"The manner in which this proposed change has been handled to date is not in keeping with all of the joint work done by both the Government and business sector in the past few years to bring stability and growth to Jamaica," said Wehby, who heads one of Jamaica's most powerful company and has himself served as a government minister.

"GraceKennedy is not in favour of any change that will result in a monopoly of supply of a key raw material for our manufacturing businesses. Monopoly supply situations always harm our consumers and is bad for business," he said.

Seaga said the uncertainty surrounding the SIA's source markets, the price the agency will pay in these markets, and the price it will eventually look to sell the commodity at to local manufacturers has created 'fiscal forecasting challenges' for producers.

"No one knows what price the SIA will be purchasing the sugar at, so nobody can plan their business. Many of our manufacturers forward buy for up to 18 months," said Seaga.

"I would venture to say I don't think the SIA has the wherewithal, based on their track record, to import as inexpensively as many of our current members who have international buying agreements," Seaga charged.

Manufacturers have clearance to import the sweetener duty-free but only if it is being used as raw material input. As an end product, refined sugar attracts 128 per cent duty.

The industry therefore sees two categories of importers, those who import for commercial use to feed the retail trade, being the larger supermarket chains and major distributors; and those importing as manufacturers.

However, sugar and trade interests say there is insufficient oversight to ensure that duty-free sugar is used for the purpose intended.

"What obtains now can be described as a free-for-all," said Allan Rickards, chairman of Jamaica Cane Product Sales (JCPS), the distributor of brown sugar in Jamaica.

With the proposed changes, end users and producers will pay a "minimal fee" to the SIA to conduct imports, said Rickards.

Seaga, in response to the agriculture ministry's charge about the system's abuse by manufacturers, contends that the issue "is a matter of enforcement"; that the more important consideration is whether SIA can deliver.

"The manufacturers source their raw material from different parts of the world. I don't think the SIA is able or willing to accommodate those requests," said the JMA deputy president.

breaches in import licences

Some 70,000 tonnes of refined sugar is imported annually, the majority of it by manufacturers, said Rickards, who is also chairman of the All-Island Jamaica Cane Farmers' Association.

Annual import quotas are doled out by the Ministry of Agriculture, and the Trade Board issues the import licences based on the assigned quota. The Trade Board is assisted in the monitoring of the sector by Jamaica Customs Agency.

Victor Cumming, the CEO of the Trade Board, said the agencies have detected breaches in import licences over time, citing examples of "importers bringing in artificial sweetener, using that in their products under their licence for refined sugar then importing the refined sugar duty-free and selling it the commercial trade."

Rickards said were imports to be vested solely in the SIA, the industry would be brought "under tighter scrutiny with the aim of curbing in whole or in part the present abuse of import for processing that finds its way into retail market."

However, Seaga has alleged that Rickards has taken that stance because JCPS stands to gain from the SIA takeover - his inference being that SIA plans to hire JCPS to do the distribution of refined sugar.

"If Pepsi, for example, decides that they are going to ramp up production because of their forecast and have ordered their sugar, and the SIA has not made the necessary provisions for that and can't find the sugar, what happens to Pepsi and their 2,000 workers?" Seaga demanded.

"They go home and sit down while Mr Rickards and his team reaps the benefit?" he asked.

"That won't be allowed to happen," he declared.

Derrick Heaven, executive director of the SIA, said while his agency has not made a final decision on JCPS as distribution partner, that "is the proposal," he said.

Details of the final arrangements are in the hands of the agriculture ministry and will eventually be announced, Heaven said.

Wehby says three of GK's Jamaican factories use refined sugar as input, as do many manufacturers, some of whom make products for GK under contract.

"All of these locally made products have to compete with each other, as well as imported goods. If our manufacturers are unable to have access to refined sugar at world pricing, at the required quantities, quality and with favourable credit terms, this could be a huge problem if we are going to compete," he said.

tameka.gordon@gleanerjm.com