Mon | May 29, 2023

Business uncertainty over food, fuel, fertiliser

Published:Friday | April 29, 2022 | 12:11 AM
Rudolph Brown/Photographer 
From left: JMEA President John Mahfood interacts with Managing Director of Newport-Fersan Jamaica Limited Dennis Valdez, CEO of GraceKennedy Foods - Domestic Business Frank James, JMEA Executive Director Kamesha Blake, and CEO o
Rudolph Brown/Photographer From left: JMEA President John Mahfood interacts with Managing Director of Newport-Fersan Jamaica Limited Dennis Valdez, CEO of GraceKennedy Foods - Domestic Business Frank James, JMEA Executive Director Kamesha Blake, and CEO of Jamaica Public Service Company Limited Michel Gantois. Occasion was a business networking forum on ‘Uncertainty in the Global Economy Caused by the Ukraine and Russia War’, hosted by the Jamaica Manufacturers and Exporters Association on Wednesday, April 27, at the NCB Sports Club, Phoenix Avenue, New Kingston.

Uncertainty remains elevated around the supply and price impacts on fuel, food and fertiliser after the onset of the Russian invasion of Ukraine that started in late February, a networking forum of exporters and manufacturers noted on Wednesday.

The immediate impact relates to inflation now towering at 11.3 per cent, nearly twice the top end of the central bank’s 4-6 per cent target range.

“We are in a situation where we do not know what’s going to happen. We are on the possible brink of nuclear war. And if that were to happen, then we probably wouldn’t be getting up tomorrow morning,” said John Mahfood, president of the Jamaica Manufacturers and Exporters Association, JMEA, at the forum in New Kingston. “But in the meantime, the more we know, then the more we can plan.”

The JMEA convened the forum for businesses to discuss the implications of price shocks that affect fuel, fertiliser and food. As offset, the experts in the respective sectors want to increase energy conservation, improve crop productivity, and boost local production.Jamaica Public Service Company Limited, JPS, which depends on natural gas supplier New Fortress Energy and oil refinery Petrojam Limited for fuel to fire its power plants, says fuel supply is “steady”.

Last week, JPS received a 120,000-cubic-metre shipment of LNG from New Fortress, its second since the war began.

“Petrojam supplies of diesel fuel oil remains pretty high,” said JPS CEO Michel Gantois, a panellist at the forum.

“Supplies are okay today, but maybe not tomorrow,” Gantois warned, adding that Russia’s move this week to bar certain European states from accessing its gas would have implications for supplies and prices. [See story on page 14.]

Gantois said the shortages in Europe could result in governments influencing companies to divert supplies destined for other parts of the world, regardless of contracts.

“The fact is that if you double the price of gas in Europe, then I can imagine some cargo destined to countries like Jamaica could be diverted magically to Europe, where people will pay double and could lead to supply disruptions. We do not know that this will happen, but it could,” he said.

Already, natural gas prices are at US$6 to $7 per 1,000 cubic feet unit, double the average price of US$3 a year ago. Oil prices also hit US$130 a barrel since the war, but have since descended to the US$100 to US$105 range. Crude is up 34 per cent since the start of the year.

Light bills rising

In Jamaica, the average consumer monthly light bill has jumped from $6,700 to $9,600 between January 2021 and March 2022, Gantois said previously at another event in April. For a small commercial customer, their bill moved from $500,000 a month, on average, to $770,000. A similar increase affected larger commercial customers.

JPS passes on the cost of fuel to consumers without a markup. As the cost of fuel climbs or falls, light bills move in tandem.

Gantois called on consumers to conserve energy wherever possible. He, however, noted that light theft costs the utility US$200 million a year, and results in the utility and paying customers absorbing the cost. It’s the latest estimate of light theft by the utility provider, now up 12 per cent from four years ago and 80 per cent higher than the estimate eight years earlier, according to data in JPS’ tariff application, which it uses to advocate for a rate increase from its regulator.

Gantois joined the company two years ago as CEO, but has been highlighting electricity theft from day one as a growing concern.

Ukraine and its neighbours supply one-third of global wheat and sunflower seeds. The war, however, has increased the difficulties in supplying food to various parts of the world. Millions of Ukrainians are refugees in Europe, which increases food demand in those nations.

Added to that, farms, factories and farmers in Ukraine are at risk from Russian shelling. This could lead to shortages in the future, said forum panellist Frank James, CEO of GraceKennedy Foods - Domestic.

“This potential global food crisis must be a call to action for Jamaica to look at how we move forward towards feeding ourselves as a nation, and how we drive greater self-reliance in food,” James said.

The impact of a food crisis goes beyond pricing and inflation, but includes the availability and reliability of food supplies.

“We must be prepared as a country to mitigate the risk and find opportunities,” James said, arguing for Jamaica to increase its agricultural activity in order to fuel manufacturing and, in turn, raise exports.

For its part, GraceKennedy aims to raise the proportion of its exports from 30 per cent of production to 50 per cent by 2025.

Ukraine and Russia also supply Jamaica with fertiliser inputs. That’s now under threat with the war uncertainty. Farmers in Jamaica are already paying higher prices for fertiliser, which increased from $4,500 per bag just before the pandemic to $12,000, according to Dennis Valdez, managing director of the sole fertiliser manufacturing operation in Jamaica, Newport-Fersan.

“We will be seeing a reduction in [farm] production and productivity in Jamaica,” Valdez said.

Already, fertiliser usage has dropped over the past year, from 24,453 metric tonnes to 20,771 metric tonnes as of March 2022. Instead, farmers have been turning to substitutes such as chicken manure.

“In a crisis like now, anything that you can do to put some food to the crop is going to be better than nothing,” said Valdez, even while noting that the substitutes don’t provide the full nutrients needed for crops.

Valdez also noted plans by rum maker J. Wray & Nephew to build a dunder treatment plant, which will convert waste into fertiliser and animal feed. He noted, however, that the days of $4,500 a bag for fertiliser may never return.

“We do not know whether these prices will return to the level they were two years ago,” he said.

Jamaica imported US$9.16 million worth of fertiliser from world markets in 2020, according to the latest trade data from the United Nations.