Inflationary pressures squeezing small exporters
Jamaican companies that trade in foreign markets are facing resistance to retail price increases, putting the squeeze on export revenue and margins for some small and medium-sized manufacturers. Still, their stance is to hold strain despite the...
Jamaican companies that trade in foreign markets are facing resistance to retail price increases, putting the squeeze on export revenue and margins for some small and medium-sized manufacturers.
Still, their stance is to hold strain despite the testing economic climate that’s underpinned by a stubborn pandemic and war in Europe.
Large companies, however, seem to be doing better due to their more muscular operations and logistical structures.
The constraints on price increases overseas are not new for local companies. But they have become more of a thorn with the extra pressure that rising global inflation, rising commodity and input prices, and higher shipping costs have brought on businesses that trade mostly with the United States, a consumer-empowered society.
“Their market is one of low inflation, and so when you are a small exporter like most of us are in Jamaica, it’s very difficult to go to a large supermarket chain and tell them you want to increase prices. You’re not an important supplier to them, they may not accept it,” said CEO of Jamaican Teas Limited John Mahfood.
Spur Trees Spices Jamaica Limited was the first to speak up publicly on the issue, saying at an export forum that it has had to focus on investing in efficiencies to constrain expenses, having largely been denied the option of using price increases to offset rising costs.
“In 15 years we couldn’t get a price increase because the US market don’t like to hear price increases,” said founder Harrinarine ‘Mohan’ Jagnarine at an export forum hosted by Jampro.
“We will talk about price increase in Jamaica where we can increase by four to 10 per cent. In the US, you increase by 0.3 per cent,” Jagnarine said.
Jamaican Teas has been chasing after additional export business in recent years, with some success.
But in the March quarter, the tea maker recorded a five per cent decline in export revenues after two years of robust growth.
Mahfood puts the blame on widespread supply and logistics cost pressures, which have effectively sent production costs ballooning.
“The issues related to cost have been twofold. The cost of shipping has gone up over 2021-2022. Containers usually cost US$2,000 but went as high as US$20,000. On top of that, because of the significant demand generated in the US for packaging materials like bottles, cans, costs from suppliers themselves have gone up by approximately 10 to 15 per cent,” he told the Financial Gleaner.
For Jamaican Teas, export sales represent some 60 per cent of revenue. It has been exporting to the US market for 15 years.
Spur Tree Spices CEO Albert Bailey declined to comment further on the export performance until after the company’s quarterly earnings report is released.
The spice maker, which became a publicly listed company in January, makes over 90 per cent of its revenue from export sales.
“In Spur Tree’s case, every cent we got we would buy new equipment to get more efficient because we couldn’t keep raising the price,” Jagnarine said.
Large manufacturing companies like Wisynco Group, however, have found it a bit easier to push a portion of their expanding costs on to international customers.
The beverage maker has enough production muscle to better negotiate global price changes with international supermarkets as well as the capability and capacity to stock excess goods.
Wisynco did not indicate how exports performed in its newly released March third-quarter results, saying only that they continued to grow. But in its previous December second quarter report, it said export revenue rose 103 per cent year on year due to increased efforts to gin up foreign sales.
Chairman William Mahfood told the Financial Gleaner that while the company has some protection against inflationary adjustments, due to export earnings in US dollars, it has been increasing prices in line with price changes in the international market.
“It has very little impact because the prices of everything else are going up. We are keeping pace with the rest of the world,” he said.
Mahfood acknowledged, however, that smaller players would have a harder time making those adjustments.
“In many cases, the large customers will take a stance that they don’t need an increase and they know that the smaller manufacturer may be dependent on their business. The other issue is smaller manufacturers don’t necessarily have the working capital to stock up on raw materials during times of crises, so they may be far more exposed to increases,” the Wisynco chairman said.
Although one of the remedies for companies seeking to protect their margins in the face of higher production costs includes consumer price increases, it is action companies usually say they resort to reluctantly and after careful study of the potential impact on demand for their products.
But by and large, however, local price increases happen frequently in the retail market, often with no pushback from Jamaican consumers.
“In Jamaica, it’s different, but if the prices get too high, then people won’t be able to pick up the product, and that affects overall sales,” said Jamaican Teas’ Mahfood.
To guard against that, the Jamaican Teas management reviews its price actions on an ongoing basis, he said.
The tea maker is expecting the tide to turn soon as shipping rates appear to be turning downward, and central banks around the world, including the Jamaica and the United States, have been hiking interest rates to temper inflation.
He is also bullish on the prospects for exports to less economically affected Caribbean markets like Trinidad & Tobago, Guyana and Suriname.
“Our sales to Caricom are increasing, and that is also helping us to regain export sales. Our goal is to continue to export,” said Mahfood. “That’s where the growth comes from, and that’s where all companies in Jamaica should be focused,” he said.