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Drink Makers Fear ‘Irreparable Harm’ From Budget Tariff Cuts

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian juice drink manufacturers have warned they face “irreparable harm” if the Government eliminates the 60 per cent duty on rival imports, with one warning up to 20 jobs are at stake.

Geoffrey Knowles, operations manager at Aquapure, which produces the Tampico fruit punch, told Tribune Business: “If that reduction goes through we will have to cut back our production, which means laying-off staff; about 20 persons. If we lose the duty advantage there is absolutely no way we can compete.”

He added: “Tampico is quite popular. It has a pretty good market. Outside of that there are about another 50 juice drinks available to the public. There aren’t a lot of local juice manufacturers. There is us, Switcha, which has done tremendously over the past few years, and a few smaller guys. They have their market.

“We have done good things with Tampico. We are constantly fighting with the likes of Sam’s Club and CostCo because they receive so much discounted stuff due to excess production. We want to be competitive, but when you look at our economies of scale, the cost of electricity here and staffing costs, it makes it very difficult for local manufacturers. Our competitors can produce three times the volume that we can for far less.”

Mr Knowles continued: “Tampico does very well in Abaco. We do sell to a wholesaler in Freeport, but it’s not as competitive because of the competition out of Florida and the fact that the shipping rate from Florida to Freeport is half the price of the rate from Nassau to Freeport.

“We are going head-to-head with producers in Florida. Right now, Sunny Delight is our biggest competition. If you take that 60 per cent duty off they would be significantly under our price.”

Mervin Sweeting, Switcha Bahamas’ chief executive, told Tribune Business that the proposed Budget tariff cuts were “a slap in the face” for local manufacturers competing against foreign rivals who enjoyed significant cost and ‘economies of scale’ advantages.

In a letter to Brent Symonette, the minister responsible for trade and commerce, Mr Sweeting said the complete elimination of the 60 per cent tariff on imported fruit drinks would further hurt “an already fragile and disregarded industry”.

“If it is reduced, it will affect the local juice beverage manufacturing industry and give unfair competitive advantages for wholesalers to sell at cheaper prices, thus causing irreparable harm to this industry,” Mr Sweeting wrote.

“As local manufacturers we have to take on high electricity costs, high fuel costs, NIB, Business License, a very large pool of low-skilled, untrained, rude and lazy workers, and minimal access to capital along with high duty on company vehicles. These added costs make it very difficult to compete with foreign products, which is why the duty should not be reduced as it would hurt an already fragile and disregarded industry.”

Mr Sweeting told Tribune Business yesterday that he had received no response to his letter, which called for the Government to reinstate the tariff on imported fruit drinks to 60 per cent. The 2017-2018 Budget is also proposing to lower the duty on ‘drinks’ from 55 per cent to 30 per cent, and eliminate the 5 per cent tariff on juices.

The Switcha said these tariff cuts ran counter to the Free National Movement’s (FNM) election campaign promises to support Bahamian manufacturers and entrepreneurs, and suggested that the Minnis administration was little different from its PLP predecessor.

“It seems like Peter is no better than Paul, so we’re back to square one,” Mr Sweeting told this newspaper. “No one has consulted anyone in the beverage industry, and we all speak to one another.

“Everyone in the beverage industry as a whole is upset and trying to figure out why they’ve made such a decision because it’s such an uninformed, unjustified decision.”

Mr Sweeting said the 60 per cent duty elimination was “touted” during the Budget debate as something that was conceived by the incoming administration, and he also hit out at the Deputy Prime Minister’s comments to the National Conclave of Chambers of Commerce last Thursday.

K P Turnquest, who is also the minister of finance, said that while he was sensitive to local manufacturers’ needs, they - and the wider Bahamian economy - needed to work out how to increase their competitiveness in the absence of protective measures such as tariffs.

“It was like a slap in the face,” Mr Sweeting told Tribune Business. “It was like: ‘We know what we’re doing, and you guys must be more competitive’. If that is the case, that is completely wrong and sends the wrong message.

“Through their campaign they were talking about helping manufacturers, building up local Bahamians and helping our economy. This is what you want to do to Bahamians?”

Mr Sweeting added that while Bahamians would always support home-grown products, the economic realities of high unemployment and stagnant/reduced incomes meant consumers were increasingly shopping on price.

The duty reductions, he emphasised, would make import rivals more competitive and attractive in that exact same area - price.

Amid fears of reduced demand and sales for Bahamian-made products, Mr Sweeting said the Government’s Budget policies would further disincentivise local entrepreneurs from starting such businesses.

“That’s going to discourage young people from getting into business, as they will not have an opportunity or a head-start,” he told Tribune Business. “It will be too competitive for them to get into, as they will be at a disadvantage from day one.

“It’s going to discourage potential local manufacturers and entrepreneurs from getting into the beverage industry or any manufacturing industry, as there is no hope for them to grow, especially when they are competing against imports that are duty-free.”

Mr Sweeting reiterated that Bahamian manufacturers were “always always fighting hard with a pool of low-skilled workers, where it takes two persons to do the job of one”, and urged the Government: “Don’t make it more difficult for us.”

“They have to make wise decisions, and consult the industries they are going to affect,” he said of the Government, “and see the impact. Be mindful, talk to us, and be consultative, because if we fail the Bahamas’ fails, more businesses close down, and the worse the economy is going to get.

“It [the tariff structure] wasn’t broken, so why look to fix something that’s not broken? That’s a whole lot of money foregone in import duties at a time when the Treasury needs revenue. There’s no real reason you just did that.”

Mr Sweeting argued that the real beneficiaries from the proposed duty elimination would be Bahamian wholesalers, as opposed to consumers, and said: “Crime is too high to hurt a sector that employs so many Bahamian men. The factory guys, delivery guys, warehousing guys. I would like Mr Turnquest to justify and explain the reasoning behind such an ill-thought out move.

“Nothing in the new Budget offers any incentive or relief for the manufacturing industry, or for small businesses on the whole for that matter. The new Government should be very careful before it makes a decision about a particular industry. Speak to the stakeholders first to see how it affects them.

“Bahamian business owners have grown frustrated at the lack of respect from politicians, who make these unjustified decisions with no input from the people. If this is going to be a trend with the FNM, they can expect a fight because now you’re putting livelihoods at risk. Further, there was so much talk about supporting local industries and now this.”

Mr Sweeting, in his letter to Mr Symonette, suggested several measures to support Bahamian manufacturers apart from leaving the existing duty rates well alone.

He called for the Government to sell Bahamas Agricultural and Industrial Corporation (BAIC) land to local manufacturers, thereby giving them an asset that can be used as collateral to raise investment/growth capital.

The Switcha chief also called for lower electricity rates for approved manufacturers; the elimination of duty on spare parts for manufacturing equipment; and the reduction or elimination of Business Licenses and duty on company vehicles. Mr Sweeting said the latter should be bonded.

Aquapure’s Mr Knowles also stressed the importance of protecting local manufacturing, saying: “I know that protectionism is a word people don’t like to use, but we have to protect the industry here because it makes us sort of self-sufficient in certain things. We can’t be completely dependent on outside sources. The little bit of manufacturing we are able to do we should do.”

Bahamian juice manufacturers thus find themselves in a similar predicament to local paint and battery supplies, who last week made similar demands of the Government - to repeal the 2017-2018 Budget duty cuts that will impact their industries by making imports more competitive.

Budget tariff cuts frequently trigger protests and push-back from manufacturers and producers, and trigger the long-standing debate of ‘protecting’ local businesses and ‘Buy Bahamian’ versus allowing consumers to obtain the best prices.

Bahamian manufacturers, due to this nation’s high operating cost structure, are frequently unable to compete on price with foreign rivals who have greater economies of scale. This frequently raises the issues of whether they should compete on factors other than price, and if Government policy should ensure the Bahamas maintains a manufacturing base - and the jobs associated with it - especially since tariffs may soon no longer be an effective tool as this nation enters into rules-based trading regimes.

Mr Turnquest could not be contacted for comment before press-time last night.

Comments

birdiestrachan 4 months ago

its the peoples time, so just enjoy the ride. Five short or five long years according to how one looks at it.

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ohdrap4 4 months ago

so, do you want to commit suicide?

drink tampico juice with ramen noodles three times a day. it might not kill you, but you will be suffering horrible pain. these drinks are the most unhealthy things one can have, and they are being increasingly taxed very highly all over the world.

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B_I_D___ 4 months ago

Go ahead and tax the juices across the board with a 'sin tax'...but that should apply to ALL drink manufacturers, including the locals brands.

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Publius 4 months ago

Tampico is no worse than the other drinks whose duty is now being eliminated and would ultimately be cheaper to purchase.

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Publius 4 months ago

Turnquest's likely response? Don't blame me, I'm just the Minister of Finance tabling what they gave me to table.

Mr Turnquest could not be contacted for comment before press-time last night.

Already becoming a trend I've noticed.

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The_Oracle 4 months ago

Love it that the "drinks industry" seems completely oblivious to the Required and Agreed upon Elimination of duty rates across the board with respect of WTO Accession and agreed upon time tables as negotiated by both PLP and FNM Governments. This administration is doing what has been long agreed must be done. Why do you think VAT was installed? for popularity? The VAT can was kicked down the road due to political fear for almost a decade. Finally done in 2015. It is in place to REPLACE duty as the #1 revenue source for the Treasury. (along with other agreed timetables for Real Property tax, Income, etc etc) If there is any slight here it is that Bahamians have been treated like mushrooms for decades by all administrations.

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Publius 4 months ago

VAT was being pressured on The Bahamas since the Pindling administration in fact. And yes, many are oblivious to what The Bahamas would be signing away by joining the WTO, which is far greater than customs duties.

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DDK 4 months ago

And THAT is what is not being brought to light by successive Governments. These world banking and trade organizations are anathema to those who understand them. They are implements of the 1% disguised as 'must join' clubs for the unsuspecting or bullied countries of the world.

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OldFort2012 4 months ago

“As local manufacturers we have to take on high electricity costs, high fuel costs, NIB, Business License, a very large pool of low-skilled, untrained, rude and lazy workers, and minimal access to capital along with high duty on company vehicles." I could be facetious and make some racist comment, but I will refrain myself. What an extraordinary thing to put in writing, though.

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banker 4 months ago

I was just about to outline the same thing when I saw your comment. It's not racist to call it like it is. The only adjective that he forgot, is functionally illiterate.

A current cabinet minister, in private conversation, once said to me, that the only time when he has seen his employees motivated, working hard and prolonged, is when they are trying to figure out how to rob him and/or game the system.

This whole thing brings ups the question that economics deals with: if a business is not competitive, should it be in business? Most countries have trade barriers as protectionism for their domestic economic activity, but they also have trade agreements that deny protectionist tariffs. Should we protect inefficient businesses?

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ThisIsOurs 4 months ago

Sounds like the MOT, someone said to me, he think everyone (black workers) is a thief it's all he talks about.

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Publius 4 months ago

I actually didn't see it as racist in and of itself. It is in many respects true, though it's a painful truth to hear I suppose.

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OldFort2012 4 months ago

I suppose it is not necessarily racist. But it could be so interpreted. On the other hand it is an extraordinary thing to put in writing to a Minister. Calling the population that you draw your workforce from "untrained, rude and lazy" should not have the desired effect of ingratiating yourself with a Government whose help you are seeking. Or am I just too old fashioned? I would not dream of putting that in a letter or statement as I could see no upside from saying it, however true it might be.

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MassExodus 4 months ago

Too old fashioned. Call it like it is. It is not racist. Sometimes the truth hurts, but once we learn to accept, we can begin to address it.

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JohnDoe 4 months ago

What he has done is provide a pretty accurate description of the headwinds facing local manufacturing. My experience has led me to believe that most local politicians have not grasped the simple fact that it is just not sustainable for our economy to continue to endlessly import basic goods or endure the uninterrupted balance of trade current account deficits without this permanently and negatively impacting the continued parity of the B$ to the US$, GDP growth and domestic employment rates. When we import, those dollars are lost forever to our economy. The real issue here is to ask the question, "what is the role of government and fiscal policy in an economy". The answer to that question provides an answer to the issue above. Can these local manufacturers really compete or are they really inefficient when the foreign firms have an absolute advantage because of the above structural weaknesses in our economy? We are running deficits between $300 to $500 million dollars a year yet no one can touch what we are spending this money on. If we can just focus a little of those dollars on fixing these structural issues then that alone would significantly expand the productive capacity of our economy.

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banker 4 months ago

The big import is food. And yet there is no way out, because imported food from North America is made by huge agri-businesses and farmers who receive huge subsidies from their respective governments. Also the economies of scale made food ridiculously cheap, especially when wheat is grown on 1,000 acre farms and chickens and eggs are factory produced in facilities that output more in one day than our population can consume in a year.

We have to figure out how we can derive some economic activity to offset the imports. As you point out, the trade imbalance is not sustainable, especially with the two main pillars of the economy in decline.

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Economist 4 months ago

I agree with The Oracle, this has been a long time coming.

When I was young we bought cutlery made in Sheffield, England. Today you buy cutlery from China. The steel industry is now very small in the UK.

Most of our electrical appliances and tools would come from the US. Today they come from South Korea, China and Taiwan.

There are going to be certain industries that we can no longer do. Sodas and the like are one of them.

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The_Oracle 4 months ago

Bahamians a few years ago were spending $2.11Bn. in Florida annually, and that doesn't include some of the major retailers who spend in other states. This is cash and carry business, with U.S. suppliers at most sending it to a dock.
This is being greatly eroded by Bahamian retail shop sourcing in Panama, China direct, and other countries, and eroded by amazon and other online venues. The retailer still sourcing in Florida is carrying a disadvantage that will only get bigger. Locally operation costs are greater, more punitive, union agitation unpredictable, Government rules erratic. Flat duty rates of 8-10% across the board (as required by 2025 under WTO) will help, but all nonsensical crap has to stop also. Alternate energy is one major gate that aught to be opened wide. (per code standards, not by BEC/BPL "requirements) Business license tax by net, not Gross. Real property tax across the board, Bahamian and foreigner alike (coming anyway, per WTO requirements) And yes, even income tax will happen corp. and personal. And here we are bitching about sugar water.

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proudloudandfnm 4 months ago

If you can't be compettitive in a duty free market then IMPROVE YOUR PRODUCT!

Duty elimination is our only, best hope for economic progress..

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B_I_D___ 4 months ago

Again, I'd love to keep the local manufacturing...but at what cost, the people are broke, so we are going to put up a protective tariff so that we can get local manufactured product up on the shelf at a higher price to the consumer...instead of letting the consumer benefit from lower costs on the store shelf. The flip side of course is if there are no jobs, there is no income...round and round we go...

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Sickened 4 months ago

Exactly! Does the government save 20 jobs OR do they reduce duty on juice so that all 300,000 Bahamians save hundreds of dollars a year each. I would go with the latter!

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bcitizen 4 months ago

Lower cost for consumers usually by importing but, who are consumers? People need jobs to make money in order to be consumers. They are same person. The Bahamas is losing jobs left, right, and center. There needs to be a balance between protecting jobs (consumers) and their spending power. No job, no spending power. If the Bahamas thinks it can continue with the trade deficits that we currently have then devaluation is a certainty. It is a cycle and there needs to be balance. Over protection allows manufacturers/farmers to become lazy but, with the multifaceted problems in the Bahamas economy some government interference is needed to create a level playing field.

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