Uncertainty remains high around the impact of supply and prices on fuel, food and fertilizers after the start of the Russian invasion of Ukraine that began in late February, a forum noted on Wednesday. networking of exporters and manufacturers.
The immediate impact is on inflation which now stands at 11.3%, nearly double the upper end of the central bank’s 4-6% target range.
“We’re in a situation where we don’t know what’s going to happen. We are on the possible brink of nuclear war. And if that were to happen, we probably wouldn’t get up tomorrow morning,” John Mahfood, president of the Jamaica Manufacturers and Exporters Association, JMEA, said at the forum in New Kingston. “But in the meantime, the more we know, the more we can plan.”
JMEA convened the business forum to discuss the implications of price shocks affecting fuel, fertilizer and food. In compensation, experts in the respective sectors want to increase energy conservation, improve crop productivity and boost local production.Jamaica Public Service Company Limited, JPS, which is dependent on natural gas supplier New Fortress Energy and the refinery oil company Petrojam Limited for fuel to fire its power stations, says fuel supply is “stable”.
Last week, JPS received a shipment of 120,000 cubic meters of LNG from New Fortress, its second since the start of the war.
“Petrojam’s supply of diesel fuel remains quite high,” said JPS CEO Michel Gantois, a forum panelist.
“Supply is ok today, but maybe not tomorrow,” Gantois warned, adding that Russia’s decision this week to ban some European states from accessing its gas would have implications for supplies and the prices. [See story on page 14.]
Gantois said shortages in Europe could lead governments to influence companies to divert supplies destined for other parts of the world, regardless of the contracts.
“The fact is, if you double the price of gas in Europe, then I can imagine that some of the cargo destined for countries like Jamaica could be magically diverted to Europe, where people will pay double and could cause supply disruptions. We don’t know if that will happen, but it could,” he said.
Already, natural gas prices are between US$6 and US$7 per 1,000 cubic feet, double the average price of US$3 a year ago. Oil prices have also hit US$130 a barrel since the war, but have since fallen into the US$100-$105 range. Crude is up 34% year-to-date.
Light bills on the rise
In Jamaica, the average monthly consumer bill rose from $6,700 to $9,600 between January 2021 and March 2022, Gantois said at another event in April. For a small commercial customer, their bill went from $500,000 per month, on average, to $770,000. A similar increase affected large commercial customers.
JPS passes the cost of fuel on to consumers without a markup. As the cost of fuel rises or falls, lighting bills move in tandem.
Gantois called on consumers to save energy wherever possible. He noted, however, that light flying costs the utility $200 million a year, and the utility and paying customers absorb the cost. This is the latest estimate of light theft by the utility provider, now up 12% from four years ago and 80% higher than the estimate eight years earlier, according to the data from JPS’s rate application, which it uses to advocate for a rate increase from its regulator.
Gantois joined the company two years ago as CEO, but has highlighted power theft from day one as a growing concern.
Ukraine and its neighbors supply a third of the wheat and sunflower seeds in the world. The war, however, has increased food supply difficulties in various parts of the world. Millions of Ukrainians are refugees in Europe, which increases the demand for food in these countries.
In addition, Ukrainian farms, factories and farmers are threatened by Russian bombing. This could lead to shortages in the future, said forum panelist Frank James, CEO of GraceKennedy Foods – Domestic.
“This potential global food crisis must be a call to action for Jamaica to consider how we move forward to feed ourselves as a nation and how we drive greater food self-reliance,” James said.
The impact of a food crisis goes beyond prices and inflation, but includes the availability and reliability of food supplies.
“We must be ready as a country to mitigate risks and find opportunities,” James said, arguing for Jamaica to increase its agricultural activity to fuel manufacturing and, therefore, increase exports.
For its part, GraceKennedy aims to increase the proportion of its exports from 30% of production to 50% by 2025.
Ukraine and Russia also supply Jamaica with fertilizer. It is now threatened by the uncertainty of war. Jamaican farmers are already paying higher prices for fertilizer, which have risen from $4,500 per bag just before the pandemic to $12,000, according to Dennis Valdez, general manager of Jamaica’s only fertilizer manufacturing plant, Newport. – Fersan.
“We will see a reduction [farm] production and productivity in Jamaica,” Valdez said.
Already, fertilizer use has fallen over the past year, from 24,453 metric tons to 20,771 metric tons in March 2022. Instead, farmers have turned to substitutes such as manure from chicken.
“In a crisis like today, anything you can do to feed crops will be better than nothing,” Valdez said, while noting that substitutes don’t provide all the nutrients crops need.
Valdez also noted plans by rum maker J. Wray & Nephew to build a waste processing plant, which will convert waste into fertilizer and animal feed. He noted, however, that the days of $4,500 a bag of fertilizer may never return.
“We don’t know if these prices will return to where they were two years ago,” he said.
Jamaica imported $9.16 million worth of fertilizer from world markets in 2020, according to the latest United Nations trade data.