Friday, July 25, 2008

Broilers gives up on fish export - Expects to profit from decision

Published: Friday July 25, 2008

Jamaica Broilers Group has shut down its export fish operation, effective July 1, a decision forced on the company by a resistant market that would not pay more for its fresh fillet, leaving the company to suck up higher production costs as raw material and fuel prices escalate.

Broilers, whose fish business falls under subsidiary Jamaica Aquaculture Limited, says it will give up revenues of $250 million that its fillet earned from supermarkets supplied in the United States and Europe.

"The "supermarket chains were not prepared to accept the increases necessary to cover the increased cost" and consequently "the business became unprofitable," said vice-president of finance and planning Ian Parsard.

Faced with higher grain prices, it became more costly to feed and grow fish.

The price of corn, which the company imports for its feed processing business, has been advancing on the world market, hitting a record US$6 per bushel last week.

In Jamaica, where consumers are more tolerant of price hikes, some costs have been passed through to chicken, with the average bird at local grocers costing some $500.

Broilers was hoping to similarly pass off some of the costs on its foreign-bound fish by teasing higher prices from overseas buyers whom the company supplied with up to 20,000 pounds of fillet per week for a maximum of 1.04 million pounds per year.

They were not as accommodating as local supermarkets and food establishments.

Broilers had primed shareholders to expect problems with its fresh export fish, saying in a statement to the fourth quarter earnings report by chairman R Danny Williams and president Robert Levy in May that higher feed prices and a refusal by big buyers to pay more for the product was challenging the business.

The $250 million of revenue lost represents a half of total fish earnings, but as to the effect on the bottom line, Parsardsays exiting export fish would likely boost group profits.

Broilers, he said, expects a "positive bottom line impact of $35 million as a result of eliminating this loss."

Only loss-making business

Fish is Broilers' only loss-making business, haemorrhaging a combined $200 million in the last three years.

But the company says it has no plans to fully exit fish - which last year grossed just over $500 million or two per cent of group sales but made a $79 million loss on operations - and would refocus attention on the domestic market.

Some 80 jobs have been affected by the retrenchment, either through cuts or reduced responsibility, and while Parsard sidestepped comment on the level of capital investment that went into export fish, he told the Financial Gleaner that the equipment would be employed in other areas of the group, including chicken and beef processing.

The company's financials show, however, that investment in the entire fish operation was stepped up in 2006 and 2007, when a combined $89 million of capital went into the business, two-thirds of which was spent in the period ending May 3, 2008. Prior to that investments in fish have stayed below $20 million per year.

Jamaica Broilers is largely a poultry producer, but its businesses cover fish, beef, feed and farm supplies, prepared foods, and more recently ethanol which, though less than a year old, seems set to rival poultry as chief money maker.

Net profit

The company made $740 million of net profit at year end May 2008 on revenues of $20.4 billion and net assets of $5.9 billion.

Its pull back from the domestic market about three years ago to concentrate on exports had dealt a blow to local food service companies that had come to rely on the St Catherine-based operation.

The company now plans to do as much as 1.25 million kilogrammes (2.75 million pounds) of fillet for the domestic market annually, and going forward is projecting profit of $15 million to $30 million from fish, according to Parsard.

Asked whether the pull out from overseas markets was an admission by the company that it had made a bad bet, Parsard, a JB board member since March 2007, skirted around a direct answer.

"JB has demonstrated its ability to adapt and change to the environment whenever necessary, particularly the more recent past," he said.

"We have always been the largest player in the local farm raised fish segment and will continue as such given the correct market dynamics."

Lavern Clarke
Jamaica Gleaner

No comments: