For the past 13 years, Richard Cozier has headed the large Barbadian beverage conglomerate Banks Holdings Limited (BHL), comprising three production companies – Barbados Bottling Company, Pine Hill Dairy and Banks Breweries – along with B&B Distribution company and a holding company.
In this week’s Big Interview with Nation Senior Reporter Gercine Carter, the chief executive officer discusses BHL’s operations within the context of Barbados’ current economic climate and focuses on some of the challenges.
What are the major issues confronting BHL?
Cozier: If there is one common issue that we face now, it is the state of the local economy, the lack of meaningful growth and therefore the ability for our prime market Barbados to deliver the type of volumes that our operations require.
Normally, you would say your eggs are not all in one basket; you have a domestic market and an export market and if you have challenges here, you can go overseas. But our major trading partners in the OECS [Organization of Eastern Caribbean States] have bigger issues than we do, so it has presented us with some challenges.
On the positive side though, decisions we took two, three years ago in terms of plant upgrades and change of business activities, have helped us to a large measure to deal with those issues.
Our cost of production across the group has decreased in terms of how efficient we are with the use of our resources in an environment where just passing on prices is not something that you are free to do.
How profitable is Banks Holdings?
Cozier: We have had two years of challenges in terms of our profitability – the changeover in the dairy two years ago and last year the changeover in the brewery both brought with them one-off costs, two years that have negatively impacted our numbers. This year, we are seeing a return to profitability from domestic operations, much better than last year, but still not ideally where we would want to be. We are still tracking below budget.
So I am pretty confident that barring further shocks, we should have a reasonably good year in 2013.
The Pine Hill Dairy and Barbados’ farmers have constantly been in confrontation over the contentious issue of milk quotas. What is the current state of that relationship?
Cozier: There has always been contention between dairy farmers and the processor and it perhaps always will be a difference of opinion between the farmers and the processor as to what the industry needs. That said, I think that even though we may differ on how we approach challenges, what we have been able to do over the last year has been to have a lot more dialogue with the farmers.
Unfortunately, the dialogue is more to design measures around negatives than to say how we are going to share positives. Coming against that backdrop, we had the challenge where consumption patterns in Barbados for milk had been on the decline after several years.
Our quota system with the farmers has remained stagnant from 2006. So you have a quota system that is based on a consumption pattern from 2006 still in place with a consumption pattern that has changed in 2012/2013. Therefore, that is the crux of the matter where, as a processor, we could only process what we can sell.
We sat and walked through it with the farmers, we had their input and the eventual cut was something that we agreed on and it was a compromise agreement. We now have a mechanism where we can discuss those differences and come to a mutually acceptable solution.
The Pine Hill Dairy has concentrated mainly on milk over the years. Are there plans to diversify into other areas such as cheese production?
Cozier: First of all, what type of cheese? If we are talking about cheddar, which is the most popular cheese with Barbadians, it takes a gallon of milk to make a pound of cheese. That would cost us at the dairy in the region of about $10 to purchase that milk from the farmer. Cheese retails at $7, so you are dead in the water before you start. We cannot compete with New Zealand.
What is the current relationship with Trinidad in light of your earlier reported difficulties with milk exports to that country?
Cozier: The issue we had with Trinidad has largely been resolved. We were granted an accommodation of a transitionary period in which to get our labelling compliant with their food and drug requirements. We have implemented the change in all our designs to reflect their requirement.
Our latest roll-out, the two per cent lactose-free milk, is compliant and the other products will be compliant as we run out existing paper stocks and bring in new paper stocks. So we don’t have an issue with Trinidad insofar as label legislation is concerned anymore. The only issue that remains now is to get a pricing model that is relevant to Trinidad.
Our ability to compete in that market, however, is conditional as well on getting the right price into that market and that is one thing that is going to require renegotiation with farmers as to what price they can sell us the milk at to participate in exports.
It’s all encapsulated in the proposal we jointly have before Government to come in and play a part within the industry. If that proposal meets with favour from the Government, then a lot of things will happen to the betterment of all players.
Can you tell me more about that proposal?
Cozier: The proposal stems from the fact that in the wider world, farming and dairying in particular, benefit from subsidies. So we jointly approached the Government and said, if you can provide a subsidy directly to the farmers, the dairy would then be able to access the milk at a lower price, make a small return on it, and the consumer would then see milk on the shelf at the level that they are accustomed to or slightly below. That also, depending on the level of subsidy, will enable the Pine Hill to say ‘in some of the formulations that I now use powder, I can substitute local milk’.
Therefore, we will now have a greater pull on the farmers’ output so they go back up towards their original quota. The country saves foreign exchange because instead of buying powder from overseas, we use fresh milk and we can now be in a position to ship to markets like Trinidad, the OECS, Guyana and Jamaica because we have a price now that is going to be competitive in that market. The proposal has benefits all around, but the Government would have to see the need for protection of an industry.
What has been Government’s response?
Cozier: It has been positive from the ministers we have interacted with. We are now just waiting to see what is possible within the context of our commitments to the WTO [World Trade Organization] and CARICOM and how soon we can start.
Do you have any concerns about the growing Trinidadian footprint on the Barbadian business landscape?
Cozier: I don’t have an issue with that. Barbados Shipping & Trading (BS&T) owns 23 per cent in Banks Holdings and BS&T is now owned by Neal & Massey. I also have a shareholder, Blue Waters, out of Trinidad, I have a shareholder out of Guyana and I have a Latin capital shareholder out of Central America, so I see it as a learning opportunity.
Banks Breweries has been a major sponsor of cultural activities over the years and continues to be. What have been the spin-offs for the company?
Cozier: Any activity that requires the assistance of a third party or sponsor, we have been involved in and it certainly has benefited, because we have lived in Barbados, we have worked in Barbados and therefore we want to integrate into life in Barbados. That has certainly helped our brands in terms that people are more receptive to working with the brand or adopting a brand which gives something back to the community.
How are your beer sales doing in the overseas market?
Cozier: The overseas market, you break it down into regional and extra-regional. One of the quirks of the CARICOM agreement is that there is still a difference between an MDC (more developed country) and an LDC (less developed country). Barbados is one of the four MDCs – Barbados, Trinidad, Jamaica and Guyana – and there is no provision within the agreement as far as I am aware for graduation or demotion. Article 164 in the [Revised Treaty of Chaguaramas] says that there are sensitive industries in smaller developed countries, so [some] countries need protection from the more developed and largely it revolves around beverages. So, beer from St Lucia, St Vincent, Grenada comes into Barbados free as a CARICOM state to state, but beer from Barbados does not go into those countries free; there is a 70 per cent duty. So, as free as CARICOM maintains, we have this disconnect in terms of beverages.
There is not likely to be an immediate change in that, so our options are outside of the region and that is where we have been focusing on – North America, the US, Canada and more recently, [Britain], and we have had some success.