A bright spot
July 25, 2000
Sterling Products Limited had a good year in l999 under new management headed by Mr Ian Glasford, a Guyanese remigrant. Sales increased to $970 million from $866 million in l998. Profit before taxation was $l66 million, up from $9l million the previous year. The Chairman Mr John Carpenter in his report to the shareholders at the company's recent annual general meeting said that there had already been a substantial refurbishing of the company's infrastructure. He continued: "We will simultaneously lay the foundation for a more user friendly complex with better access roads for the smooth receipt and delivery of goods. Infrastructure will be further upgraded to meet the total requirements of the new production facilities for soaps, detergents and ice cream. We expect that our total expansion can be completed within three years, and the first plan will require an injection of some three million, two hundred thousand US dollars. We will be putting to shareholders at this Annual general Meeting a resolution to increase the shareholdings from ten million shares to twenty million shares as the first step towards raising the necessary funds by a rights issue".
In these difficult times it is good that one of our local manufacturing public companies is doing well and expanding. They do face a threat in one area of their operations, however, and that is from imported ice cream. Interestingly, the same threat had been faced by ice cream manufacturers in Trinidad and Tobago and Barbados. Acting on representations from these businesses the government in Trinidad and Tobago proposed to the ninth meeting of the Council for Trade and Economic Development in Caricom an increase in the common external tariff on ice cream, first from 20% to 40% and then to 75%. They argued that there had been a huge surge in imports from the United States, United Kingdom, Belgium and Venezuela. This had impacted adversely on modernisation, capacity utilisation and employment in the local industry. Efforts by Trinidadian manufacturers to export ice cream to some of those markets was nullified by punitive non-tariff barriers in the form of stringent quotas and standards requirements and onerous bureaucratic procedures.
The government noted in its presentation that the ice cream industry provides employment and procures supplies (milk, sugar, fruits, coconuts) from local and regional sources. The multinationals enjoy economies of scale and due to their purchasing power can obtain raw materials at significantly lower prices. They argued: "In l998 and l999, Trinidad and Tobago experienced the entry of the world's top two largest ice cream companies, namely Unilever and Nestle into the local market. These multi-nationals, in particular the UK firm of Unilever (Walls) have used their economic global and financial power to invade the market.
Walls, for example, has flooded the market with push carts, bicycles, display freezers, flags, umbrellas and awnings which have led to a substantial lessening of its competition. Local manufacturers within their limited budgets simply cannot compete with these giants.
When local firms attempt to compete with multinationals like Walls on metropolitan markets, though Caricom imports into some of these markets would be allowed duty free access, market development costs are prohibitive. For instance Walls spent US$l.5m in its first year of entry in the Trinidad and Tobago market and became a household name overnight whereas one of the local ice cream companies. Willie's spent US$l.l million and achieved a minute degree of penetration in one city in Florida".
Thus even what might seem to be local niche markets for products like ice cream can be seriously threatened by imports. It is a story that will no doubt be repeated many times with a variety of local manufacturers being threatened by imports. The governments of Trinidad and Tobago, Barbados and Suriname have adopted the 75% common external tariff (CET) for ice cream, Guyana is still using the 20% CET.
Local manufacturers will increasingly face difficult if not impossible challenges. They will be unable to compete price wise with imports because of economies of scale enjoyed by the large overseas manufacturers operating in much bigger markets. They will also find it very hard to break into those markets for a number of reasons. It will be one way traffic and the World Trade Organisation will have to grapple with this conundrum. In the meantime, our own energetic minister of trade has to decide how to deal with this problem here. Will he follow his regional colleagues, increase the tariff on ice cream and support the local manufacturers?
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