By NEIL HARTNELL
Tribune Business Editor
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.