Trinidad and Tobago's fast-moving consumer goods producers seek export growth

 

Trinidad and Tobago has one of the most developed and diverse manufacturing sectors in the English-speaking Caribbean. Its development was enabled by the import substitution industrialisation strategy followed in the late 1970s and early 1980s. This model gave local manufacturers the ability to secure market share and capacity without the risk of external competition. The food and beverages manufacturing subsector was one such segment to benefit from the policy, and now plays a pivotal role in the economy in terms of foreign exchange earnings, employment generation and contribution to GDP.

This subsector includes the production of alcoholic and carbonated beverages, juices, cereals, chocolate, confectionery, canned foods, baked goods and tobacco products. There is a synergy between the food and beverages industry and the printing and packaging segment, as manufactured goods need to be packaged and labelled for marketing and regulatory purposes in both domestic and export markets.

Market Activity

Despite the current economic climate, T&T is still an attractive destination for manufacturing. Given its geographical proximity to Central and South America, it provides businesses with the opportunity to import raw materials for processing and exportation. Additionally, its location below the hurricane belt provides a safe haven that minimises operational downtime during the annual hurricane season. Moreover, fast-moving consumer goods (FMCGs) businesses benefit from competitive advantages including advanced infrastructure and state-sponsored incentives to facilitate business operations. Thus a number of global majors are present in the local market. Based on data from the Ministry of Trade and Industry (MoTI), the top-20 non-energy export products for 2017 were valued at $TT6.8bn ($1bn). Among these exports, those categorised as FMCGs – including tobacco cigarettes, cereals, aromatic bitters, chocolate and confectionery, biscuits, prepared foods, beer, aerated beverages, toilet paper, bottles and detergents – accounted for 21% of this, or $TT1.4bn ($207.6m).

Sector Players

Unilever Caribbean (UCL) reported $10.5m in profit after tax in 2017. Commenting on the performance of the company, its chairman Pablo Garrido described 2017 as a difficult year for the local economy. He listed various challenges including the inability to access foreign exchange and the increased cost of operations in doing business locally. Reduced consumer confidence and spending were also cited as concerns along with uncharacteristic weather events, in a possible acknowledgement of the impact of Tropical Storm Bret on local operations in 2017. Despite the difficulties of 2017, UCL remains committed to T&T, announcing a plan to double its business there while reducing its environmental footprint by 50%. To do so, UCL invested TT$54m ($8m) to upgrade its local manufacturing facility, which would provide the firm with the additional capacity and operational efficiencies to drive domestic growth and increase earnings from exports, which contribute 45% of revenues.

With a 53-year history as a local manufacturer and having already invested TT$2m ($297,000) over the past five years in the local dairy industry, global brand Nestlé announced in November 2017 its intention to invest another TT$3m ($445,000) by 2020. This will fund various initiatives within the dairy industry, A key FMCG company within the local food and beverage sector, rum distiller Angostura Holdings, reported TT$111.1m ($16.5m) in group profit after tax in 2017, which represented an 8.9% decrease on the 2016 figure. Performance rebounded in the first half of 2018, with profits after tax rising 12% over 2017 half-year results to reach TT$49.2m ($7.3m). The company credited the export of aromatic bitters and the domestic sale of rum, alongside greater operational efficiencies, for the growth in profits.

Agro-Processing

The FMCG sector in T&T offers significant investment opportunities, particularly for manufacturers that utilise locally grown agricultural products to develop goods such as condiments, soft drinks, fruit juices and specialty rums.

Given the rapid opening up of global markets, coupled with increased appreciation for exotic specialty products, the local FMCG sector is uniquely positioned to brand itself as an exporter of such products and foods to markets overseas. This offers manufacturers a new market to target alongside the traditional focus on the diaspora.

In the last quarter of 2017 Baron Foods made a substantial investment in excess of $5m to establish its Chaguanas manufacturing facility on 1400 sq metres of land. The Caribbean entity, which started in neighbouring St Lucia in 1991, manufactures a wide range of products that includes condiments developed with Caribbean flavours utilising local ingredients. The investment has created over 50 employment opportunities and the export potential will contribute significantly to the economy and generate foreign exchange in the process.

Existing operations in other territories depend on relationships with 25 farmers in St Lucia and 40 farmers in Grenada. Its T&T operations will be no different, as the use of locally produced ingredients for the manufacture of its products has been a key selling point with consumers, thus realising downstream value-added potential from local produce.

One of the main challenges experienced thus far has been price consistency with farmers; however, price stabilisation of inputs is expected to be achieved over a three-year period. As well as ready access to local raw materials, Barron Foods is expecting to benefit from various trade agreements currently under development that will allow T&T to serve as an entry point into new Central America and South America markets, boosting export potential.

New Markets

Building on existing CARICOM trade agreements with Venezuela, Colombia and Cuba, as well as CARICOM free-trade agreements with the Dominican Republic and Costa Rica, the MoTI has been seeking to utilise partial-scope trade agreements (PSTAs) with various other Central American and South American countries to drive exports and increase foreign exchange earnings. The 2013 agreement between T&T and Panama, for example, provides access into Panama for 230 local products, while Panama benefits from reduced tariffs on 248 products entering the T&T market. PSTAs are said to be in advanced stages of completion with El Salvador and Guatemala, with Chile being targeted as the next possible market of interest given the fact that a good trading relationship already exists, as 90% of its imported liquefied natural gas comes from T&T.

In commenting on some of MoTI’s recent work in promoting trade, Randall Karim, director of policy and strategy at the ministry, told OBG, “A diversification thrust is not just about different products but also finding new markets for existing products. We’ve recently completed trade missions to Panama and Costa Rica and we’re currently planning for Colombia.” According to Karim, Venezuela and Cuba are important markets as well.

Case in Point

The case for expanding trade markets finds many examples, including Universal Foods, a producer of breakfast cereals. The company derives 80% of its business from exports, with the domestic market representing the remaining 20%, making it a net earner of foreign exchange. Of exports, 80% are destined for markets within CARICOM, with the rest going to extra-regional markets including Costa Rica, the Dominican Republic, Puerto Rico and Panama. However, this expansion did not come easily and at times was pursued to earn foreign exchange rather than to turn a profit.

Maintaining market share in certain territories has been challenging and margins are becoming lower due to competition from Mexico and Argentina, where currencies have been devalued to increase competitiveness. Productivity has been another significant challenge for the company, and having grown its domestic capacity by 400% over its 33 years of operation in T&T, there is no more room for incremental expansion locally.

Potential for further regional growth still exists, however, and this opportunity may be best realised by establishing a plant in South America. Such a move would allow for reliability and diversity of supply as demanded by the Latin American markets the where consumption of breakfast cereals is not yet as mature as is in other markets. In qualifying this move as a success for local manufacturing, Neil Poon Tip, managing director of Universal Foods, told OBG, “The domestic, CARICOM and immediate extra-regional markets remain important to us, and such a move would free capacity locally to better serve these markets while satisfying the demands of the growing Central American and South American markets.”

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The Report: Trinidad & Tobago 2018

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