Jun 2010 Financial News

Grace lands deal in $8b hotel food trade

Jun 04, 2010

Listed conglomerate, Grace-Kennedy Limited has struck a deal with the Government that will see the aggressive financial services, food distribution and hardware retailer planting its feet firmly in the trade in fruits and vegetables, which agriculture ministry officials have valued at J$16 billion annually, with import substitution sales to local hotels alone worth half of that amount.

Director of the Centre of Excellence for Advanced Technology in the Ministry of Agriculture and Fisheries (MoAF) and University of the West Indies lecturer in marketing, Dr Derrick Deslandes, said discussion with hoteliers as well as other market studies have led to the conclusion that some 50 per cent of the local and international market demand can be supplied in three years from local production, achieving returns of $8 billion in that time, if existing post-harvest problems, packaging and pricing issues are addressed.

Chief executive of GK Foods, the local and overseas food-processing and distribution arm of GraceKennedy, Erwin Burton, confirmed yesterday that the company had reached an agreement to lease and run the operations of one of two packaging houses being built by the Government in St Elizabeth and Manchester at a cost of $67 million, to coordinate the supplies from farmers to the lucrative fruits and vegetables trade.

"We expect to generate more than J$450 million in sales in the first and second years of operations," Burton said of the agreement already reached to equip and run the new $47-million facility at Hounslow in St Elizabeth, the construction of which, ministry officials say, will be completed by the end of this month.

Another plant is being refurbished by the agriculture ministry at a cost of $20 million in Christiana, Manchester, and while usually reliable sources say that facility will also be turned over to GraceKennedy when it is completed in December, Burton did not comment specifically on that prospect.

"Grace is planning to lease one facility at Hounslow in St Elizabeth at this time (and) our initial investment will be primarily in machinery to prepare and package produce," he said.

He steered clear of quantifying the investment the conglomerate would be pumping into the business, but said the plan was to begin operations in the last quarter of this year.

Farming of the produce to be sold through the Hounslow facility is already underway by contracted farmers, who will be paid set prices for their crops. The fruits and vegetables will be packaged according to customers' specifications.

A total of between 25,000 and 30,000 farmers, organised in a national production and supply network that involves 20 new greenhouses, will meet the demand from hotels and restaurants through the two plants.

The Government is said to be banking on GraceKennedy's know-how in food packaging and distribution management to make the project a success, starting with the 8,800 square feet Hounslow vegetable and produce-packaging facility.

Burton said another plant to house a scallion and pepper mash operation will be constructed shortly in close proximity. He did not say if this reference was to the Manchester facility.

Employment

At initial start-up, the packaging operation will employ about 25 persons, but the GK Foods CEO pointed to the wider impact by bringing new business into the communities.

But the latest development is expected too to improve the bottom line of the GraceKennedy Food division,

"We expect to take on new business and we are now in strong negotiations with new agencies to build business," Burton had told the conglomerate's shareholders at its annual general meeting on Wednesday.

Meanwhile, Burton is wary of any inconsistency in the supply of produce from farmers, as the major potential obstacle to the new venture.

"We plan to mitigate this risk by working very closely with our farmers and RADA (the Rural Agricultural Development Autho-rity) to provide our farmers with the required guidance at every stage of production, from land preparation to post-harvest techniques, in order for them to consistently achieve high-quality yields with minimal losses," the GraceKennedy official told the Financial Gleaner.

"We also plan to contract a large number of our local farmers, so we will able to provide a stable market for these farmers while ensuring our customers a consistent supply of produce."

The agriculture ministry, too, has anticipated possible input problems which farmers might face and provided grant financing secured through the National Commercial Bank, the Bank of Nova Scotia, the National Investment Bank and small business facilitator, NationGrow Finance.

"We are giving them grants which they can leverage to borrow from the Bank," the MoAF's Dr Deslandes said.

Each farmer will receive 20 per cent of total planting needs or no more than $100,000. Some $45 million from the agriculture ministry's United States Agency for International Development (USAID) Hurricane Gustav fund of $90 million, has been allocated to grants for farmers under this programme, the ministry said.

A new USAID-financed fund will also be available this year providing US$4.5 million or J$395.5 million over four years.

Selected farmers qualify on the basis of their ability to grow the corps, their past record in farming and their willingness to be trained and to repay the loans, according to the ministry.

National earnings from traditional agricultural commodities for 2009 amounted to US$39.1 million or J$3.4 billion at the current exchange rate, up from US$31.8 million, the Statistical Institute of Jamaica reported. The sector contributed close to six per cent or J$60 billion of the country's total gross domestic product of over J$1 trillion last year.


Source:
Avia Collinder, Business Writer
avia.collinder@gleanerjm.com
Jamaica Gleaner
Friday June 4, 2010

http://jamaica-gleaner.com/gleaner/20100604/business/business1.html