By Louis Holder
Louis Holder is Chairman and Chief Executive Officer of Amy’s Pomeroon Foods Inc. This article derives from a recently initiated collaborative effort between the Stabroek Business and the Guyana Manufacturing and Services Association (GMSA) to promote public discourse on the manufacturing sector by placing issues affecting the development of the sector in the public domain. The views of other stakeholders in the sector are welcome.
This is an update on the progress of Amy’s Pomeroon Foods Inc (APFI), manufacturer of Amy’s Pomeroon Coffee (APC), after almost a year of operations. During this period, the company has faced many challenges limiting its growth and which are likely germane to all small agro-processing firms operating in Guyana. Challenges faced range from the high cost of financing and electricity to cultural discrimination against locally made products, to exorbitant freight costs on exporting products to the North American market and obstructionism in Caricom markets.
President David Granger recently observed a number of failed agro-processing businesses and asked his Ministry of Agriculture to investigate the causes. This will shed light on the problems which led to the demise of these firms.
High cost of finance and energy
In major producing countries such as the USA, interest rates on business loans range between 3.25% and 3.5%, artificially kept there by banking regulators for the purpose of stimulating economic activity. In Guyana, however, the cost of business financing ranges between 11% and 14%. Since some of the largest agro-processing companies in the world such as General Mills, Kellogg and Kraft are based in the US, agro-processing companies in Guyana are at a distinct disadvantage to compete. Added to this is the cost of energy. It is a recognized fact that the cost of electricity in Guyana is one of the highest in the world but it gets worse when applied to small businesses. Demand charges by the Guyana Power and Light Inc (GPL), which recover capacity costs are collected in energy (kWh) rates for domestic/residential users, and for large industrial users, through a separate demand charge measured monthly on demand meters. But for small businesses, the demand charge is a fixed charge. Whether any demand is used or not, these firms pay GPL a fixed amount. APFI has not operated its factory for several months but has to pay GPL $100,000 monthly, a ridiculous amount for a small company. GPL needs to restructure its rates so that consumers are only charged for metered energy and demand and not for costs that have no relevance to usage. These high operating costs adversely affect the competitive position of local firms vis-à-vis imports.
Cultural biases against local products
The first incidence of this was a major local supermarket refusing to carry APC because its price was too high for a local product. It didn’t matter that the coffee is a premium grade and has been favourably compared to Jamaica’s Blue Mountain brand which retails for three times APC’s price. The second incidence was of a hotelier refusing to carry the product because he favours a certain foreign import and feels obligated to impose his preference on his clients. As a consequence of these biases, consumers are still supporting inferior imports over a high-quality product made locally. Even government ministries continued to support imports after being exposed to APC and other local products. The exceptions are Ministers Cathy Hughes and Keith Scott who have both shown exceptional support for the coffee. That may be about to change after President Granger intervened and asked a couple of his ministers to evaluate the buying of APC by government ministries. APFI is now engaged in taking its tasting events to all ministries to convince them of the quality of its coffee. These predispositions are also reflected in the Testimonials page on the company’s website where the vast majority of these declarations are from North America, where sales are miniscule. Support for imports when superior products are available locally is a prescription for putting employees on the breadline and pressure on the country’s currency.
Exorbitant freight costs
As Guyana does not represent a sizable market for any locally-produced product, a manufacturer must export to be viable. But there are so many obstructions to this; the major one being that when shipping to the North American market, unless the quantity of exports fills, at a minimum, a 20-ft container, the product has to be air-freighted. Although one can ship less than a container load (LCL) by sea, a much cheaper mode of transportation, from Miami to Georgetown, one cannot reciprocate LCL shipping from Georgetown to Miami, as this would require consolidation services, which are non-existent in Guyana. So the product has to be air-freighted, the most costly mode of transportation, which drastically reduces margins to stay competitive in these markets. Shipping costs within the US market are also costly adding another 60% to the cost of our coffee. To reach Canadian markets from the US would add 200% to the cost of coffee which makes the Canadian market totally out of bounds. So despite the complimentary testimony from Americans who had the opportunity to try APC, it is out of the reach of many there due to cost considerations.
Challenges to export to Caricom countries
APFI recently sent a LCL shipment to Barbados. The good news is that it was shipped by sea, the bad news is it took close to four weeks to get there (shipped April 24 and arrived May 19, 2016). Then the Bajan Customs took over, demanding that all documents be originals. Those were sent by express air-service but took 11 days to arrive at destination (sent May 27, arrived June 6, 2016). It seems that holdup was due to inactivity by the officials there. Then the Customs determined that the Certificate of Origin needed the Guyana Revenue Authority’s seal. This had to be dispatched with the same lack of haste on the part of Barbados officials. Bottom line is the shipment that was sent on April 24, 2016 was uplifted on July 11, 2016, in excess of 11 weeks, at substantial storage charges to the company. It simply makes no sense selling at a loss. After existing for 43 years, one would expect fewer restrictions in the movement of goods among Caricom members. Not so!
This is a description of APFI’s experience with agro-processing in Guyana. And unless the problems described are addressed, it is neither worth the investment nor the effort.
Louis Holder has over 40 years’ experience managing people and processes in a sizable New York electric and natural gas utility, and in a large industrial complex and broadband company in Guyana.
