The New Today
Commentary

Government appears to have mounted a serious mischief on the industry

The work we have undertaken here may be considered a clinical treatment/analysis of the provisions of the Bill; drawing upon policy development, management, business, economics and legal skills to interpret, explain, make connections, evaluate and draw reasonable conclusions.

Our objective is to promote a clear understanding of the issues by ordinary Grenadians. Having regard to the backdrop against which the Bill is drafted, i.e. the COVID pandemic and its foreseeable impacts, we are satisfied that the requirements of ‘The New Future’ for Grenada constitute a challenge of leadership in which old practices and intellectual drought can no longer pose as being good enough for national development.

Preliminary considerations
1. A ‘Bill’ is essentially a draft for an Act of Parliament. It is prepared by the Legal Department on the instructions of the Cabinet. Therefore, this particular Bill must be taken to reflect Government’s policy position on the subject. In other words, Government owns the Bill. While still in draft form, a Bill may be amended, held in abeyance by Government or withdrawn from consideration by the Parliament.

In this latter respect, the Bill does not become an Act of Parliament. When a Bill is ‘issued’ people are entitled to treat it as an authoritative expression of Government’s intent and purposes on the particular subject. Where the Prime Minister presents Government’s justification and goals on the matter in careful details during a National Address, citizens can be in no doubt that the Bill is ‘real’.

Therefore, indications that another Bill on the same subject has been subsequently seen by some will indicate that Government has retreated from its original position or that there is confusion or that there is a second Cabinet at work! In any and all such circumstances, the Prime Minister must come to the public and clarify the matter.

There is a difference between a rationale for a merger and a rationale to enable the goals of the merger to be achieved.

Financial viability of a business is the capacity to operate at high levels of efficiency and to produce and sell goods or services at costs such that significant profits are secured over the long-term, assuming market conditions are stable.

The evidence of viability is where profits are used for expansion and growth and to enhance shareholder value (provide more earnings to the investor/producer and increase the value of the shares over time). In other words, the business is said to be able to sustain itself financially.

The ‘viability map’ for any commodity enterprise will cover production (efficiencies, scale, investment, technology, human and financial capital), costs management, export strategy and prices and incomes. Add to this the issue of private ownership of land, so that the supply of land for and under production may vary from time to time. The merger is being raised at a time when production is low and demand for cocoa and nutmegs is soft! Both conditions are likely to hold for the next three to five years.

Therefore, the priority of the merger should be to elaborate a medium to long-term strategy for strengthening the industry and achieving financial viability. A robust internal marketing program will be needed to help farmers to understand the issues, share the vision, manage expectations and to make investment decisions.

Stand out effects:

The five most startling effects of the provisions contained in the Bill.

(1). The Association will be unable to breathe financially and will therefore die!

(II).Through the power to grant licences and allocate quotas Government decides who gets bread and who gets crumbs and who starves!

(III).A Board (not a Board of Directors, but a State- owned entity) hand-picked by the Minister/Cabinet without representation coming from the Association means that the Minister is unfettered and able to appoint at his pleasure. Therefore, the State may be said to be pursuing ‘private’ interests!

(IV). Of the three classes of exporters, two have no obligations to the producers/industry; unlike the Association which has assigned objects, functions, and duties. They simply pay for produce and pocket the profits. Recall that ‘the money’ in the industry is largely through exports.

(V).The Association will face competition from two other local exporters in overseas markets.

Non-effects of Bill
(I).The Bill does not propose the creation of a business engine for the industry, nor even an indicative rationale/layout for achieving the goals of the merger.

(II). It offers no effective cure for the problem of poor management and lack of business expertise that are said to have plagued the commodity boards in Grenada. Therefore, the Bill fails the purpose test.

(III).The Bill does not provide for or mandate a production and financing/investment strategy for growing the industry as the foundation pillar for viability. Secondly, the class of exporter described as a “group of fit persons” may reasonably include foreigners or economic citizens of Grenada. Thirdly, no national branding of the products is mandated. Lastly, the continuation of the old colonial model when options for a new business model are available. Therefore, on these four counts, the Bill fails the public interest test.

(IV). Financial viability of the industry would be unattainable where the Association’s financial position is weakened by restrictions and competition, it being the main player. Additionally, its’ ability to plan well will be constrained by the imposition of licences and quota restrictions, which conditions will produce uncertainty. Importantly, mere evidence of financial difficulties in the industry is not a sufficient justification for a merger.

(V). The Bill purports to give the Board a duty/function regarding the fixing of export prices and reinforces this with a power available to the Minister to make regulations to control and regulate the prices at which produce may be sold for export by licensed operators. This is untenable on its face! (s. 52 (2) (l)).

(VI).   The Committee of the Association is given a duty to ensure contracts and arrangements that are most favourable to the industry are entered into and maintained for the purchase, sale, handling, grading, exportation and marketing of cocoa and nutmegs (s.35 (f)). This duty fails because the Association is not the sole buyer or seller or exporter of cocoa and nutmeg!

(VII). Failure to achieve genuine liberalisation given the nature and scale of regulation to be exercised by the Board.

(VIII). The Association has little or no influence on land ownership or production and is in fact a volume taker.

The analysis up to this point already shows that the Bill contains very little that may be positive and beneficial to the Grenadian society.

Part two

Additional considerations
(I). Ministerial power and authority are central to the pursuit and fulfillment of Government’s purposes for the industry. They cover appointment of the Board, the grant of licences, the appropriation of public funds and certain appointments and dealings of the Association’s Committee. The power given to the Minister to constitute the Board (a corporate body, not a Board of Directors) begins the unloading of the mischief.

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Here the Minister appoints producers or exporters; the latter are individuals whom the Minister would have granted licences and ‘producer’ means any grower of whatever size (scale of production) whether he/she is a member of the Association or not; but, in any case, such producer goes to the Board in his/her personal and private capacity and so does not represent the Association.

This formula seems to be necessary because the Board is a regulator of Association and others in the industry. As such, the most generous position regarding ‘producers’ on the Board would be to have access to their specialist knowledge of the production side of the industry. But the position is different with respect to exporters.

Ask, what assets would ‘exporters’ bring to the Board when they are themselves licencees and are they expected to regulate themselves? This cannot stand! In context, ‘exporters’ will not refer to the Association as it is individuals who constitute the Board and the Minister is not required to consult with or even to receive nominations from the Association.

(II). The Board is declared to be a body corporate, but it is essentially a State-owned entity. Expect it to qualify as a ‘public body’ given its range of functions, appropriation of public funds by Parliament, ministerial direction and its exclusive role in the determination of licences and quotas and other evidence contained in the Bill. The Board appears to be a regulatory authority.

Note that there are provisions contained in sections 7 and 8 of the Bill which place a duty on the Board to “secure the most favourable arrangements for the purchase, sale…exportation and marketing of cocoa and nutmeg (s.7 (1) (a) and “regulating and controlling production, marketing, selling and exporting of nutmeg and cocoa” (s.7(1)(c)).

These provoke curiosity, which is compounded by provisions in s.7 (2) (e) purporting to give a power to the Board to “fix the prices at which nutmeg and cocoa may be sold locally and in foreign markets”! But the Board is not itself an exporter/seller so with whom is it going to fix export prices? Worse still, there are three approved classes of exporters under the Bill, which entities will be granted quotas and licences, but are they going to find themselves being unable to negotiate prices with overseas buyers?

Generally, then, by what means is the Board to reach into foreign markets to “fix prices” when it does not own a product and is therefore unable to offer a product for sale, i.e. it is not in a seller’s negotiating role! To summarise the confusion, one is trying to fathom whether an exporter will be forced to take a price fixed by the Board with a foreign buyer (if that were possible). In that case, the Board is the effective exporter with its contracts being fulfilled by any of the three classes of licencees! Mind-boggling stuff!! One may say that the text is improperly stated and needs correcting.

(III).   The Association is also declared to be a body corporate and is owned by the producers, as members. Notice that the Association is subordinated to the Board especially with respect to obtaining licences and is otherwise required to make representations to the Board on farmers’ behalf. Effectively, the design is intended to placate farmers temporarily, i.e. ‘blind their eyes’!

Critical questions and issues arise immediately;

(i). How will the Association finance its objects when its main potential revenue stream is controlled by the Board, i.e. quotas and licence to export produce? So the Government purports to assign a set of objects to be undertaken by the Association then turns around and compromises its ability to do so by weakening its revenue intake!

(ii). How is the Association to fare in light of competition for licences from individual producers with licences and groups of fit persons with licences?

(iii). Why is it that the Association is being subjected to apply for licences?

(iv).   Note at least four new conditions under which the Association is to exist, i.e. the need to apply for licences, quota restrictions, uncertainty of revenues (sources) and competition from two other classes of exporters.

Political bottom-line
Firstly, the Bill demonstrates a clear intent by Government to perpetuate a colonial relic through control of the industry. Note that there is no other industry in the Grenada economy today, which is subject to this kind of Government regulation and control.

Secondly, Government ownership of the Board alongside the allocation of various powers to the Minister provides a new system of regulation of the industry.

Thirdly, there is no evidence to support genuine liberalisation where a State-owned entity has monopoly power over licences and is involved in various other regulatory functions. Regulation and liberalisation do not go together!

Fourthly, there is no evidence of modernisation because a superior business model for the industry has not been presented or mandated. Recall that the ‘mischief to be cured’ had to do with how the Associations did business and their presumed lack of business acumen and negotiating skills resulting in failure to achieve financial viability.

Under the set-up laid out in the Bill, the Grenadian public is not assured of better or superior management of the industry in the public interest. The people may not even know who is selling its produce overseas based on non-disclosure terms and conditions in contracts approved by the Board relating to the export of produce, in the case of “fit persons” as a class of exporters.

Lastly, expect the eventual demise of the Association due to unpredictable supplies from farmers, quotas restrictions and licensing requirements, which will take away its ability to negotiate export contracts and weaken its revenue collection. In the circumstances, the Association would be unable to finance the fulfillment of its objects.

Taken together, Government appears to have mounted a serious mischief on the industry. The arrangements will guarantee the demise of the ‘Association’ at which point the industry will be fully in the hands of Government. In that situation, the Minister and his Board (State-owned) will distribute the spoils between any numbers of licensed exporters of their choosing. State ownership of an industry and liberalisation are incompatible.

William Joseph

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