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Fuel Pricing & Tomato Competitiveness in Belize

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By Richard Harrison

The Food and Agriculture Organization (FAO) estimated that, in 2012, Belize produced 1.7 million pounds of tomato on 96 acres of land, with an average yield of about 18,000 pounds per acre.

That year, Belize ranked #85 in the world in terms of yield per acre….with Netherlands being #1, producing a yield of 428,500 pounds per acre. All of the top 13 for that year produced yield over 89,000 pounds per acre. The USA was #18, with a yield of 78,500 pounds per acre….and Mexico was #61, with a yield of 31,700 pounds per acre. Fully irrigated farms have been known to produce a little over 30,000 pounds per acre in Belize central region. Thus Belize has a lot to do in terms of competitiveness and productivity, and irrigation can play a very big role in achieving this.

In general, tomato production costs less to produce in the cooler months because there are less pests to deal with, which lower the cost of chemicals, which is a significant contributor to total cost-of-production.

Irrigation is required for around 9 of the warmer, dryer months….and uses around $200 worth of fuel per week for an acre….or $7,200 per year…..or adding $0.40 to each pound of tomato at the farm. Then it costs around $75 on average to take 1,500 pounds to the market, adding another $0.05 to each pound….then lets add another $0.05 to take it to the retail outlets….which means that fuel contributes around $0.50 to every pound of tomato that is sold…..when it is at the current average price of around $12 per gallon.

If this price was lowered to around $7.50 per gallon…..by removing all taxes, except a 10% GST, the fuel contribution to the cost of each pound of tomato sold would be reduced to around $0.31….a $0.19 gain on every pound. At the September wholesale price of around $1 per pound, that would be an efficiency gain of 19%.

If Belize production of tomato-based sauces were allowed to supply around 50% of market demand, the amount of tomato needed for 50% of tomato solids would be around 1.5 million pounds per year….with only the domestic market requiring double the current production.

This scale and scope of demand would allow for greenhouse production of tomato to be viable, with the potential to increase tomato yields to around 60,000 pounds per acre….with a much lower cost that would allow Belize to competitively supply CARICOM demand for tomato-based sauces that would require another 4 million pounds of tomato per year…..and participate in the US winter vegetable market for another 13 million pounds….resulting in total production requirement of around 20 million pounds.

This would require around 660 acres of fully irrigated fields, or 250 acres of green house production….needing 300-400 full-time farmers, 40 distributors, 100 processors, 20 administrators, 20 marketing/sales personnel.

The total wholesale market for 20 million pounds of tomato, selling at farm-gate price of $0.80 per pound, would be $16 million. This target price is $0.20 less per pound than what the US paid for imported tomato in 2007.

Belize would benefit from being able to fill the domestic demand for tomato year-round, with a stable retail price of around $2.00 per pound….instead of high volatility, with prices ranging from $0.20 – $5.00 per pound.

Producing in strategically located clusters would allow the product-market chain to improve all the factors that would increase their competitiveness and productivity…..including, but not limited to, irrigation costs, chemicals costs, soil management, harvesting costs, storage costs, transportation costs, etc.

Belize’s fuel pricing policy currently has one objective…..to provide a predictable flow of revenues for government from taxing the importation of that fuel…..with taxes now contributing around 45% of the retail price of fuel. Belize imports around $250 million in fuel, and raises revenue of around $90 million from taxes on that import.

Fuel is a principal cost-driver in every production chain….and high taxation on this cost-driver ripples through all production chains, escalating costs at every level….rendering the entire economy uncompetitive compared to competitors whose fuel price is half ours….such as Mexico and USA, which are our principal competitors…and trading partners.

Belize needs to change its thinking on fuel pricing policy…..starting with the objective….which should be to make Belize the most cost-competitive that it can be. With such a change in objective….the fuel pricing policy will be modified so that the pump price for fuel will reach levels competitive to that of Mexico and USA agricultural belt. There will be a boom in all kinds of production industries in Belize, creating many thousands of new jobs….and generating for government much more revenues than it currently earn from the fuel tax.

Shortly after removing taxes on fuel, the government can lower GST to 10% and charge it across the board (no exceptions nor exemptions)….which will raise government revenue by much more than the loss from removing taxes on fuel…..this will ensure that the retail prices for basic commodities not increase, and in many cases will be reduced….with the potential to lower cost of living and/or increasing profits for rapidly growing investments, savings and consumption.

This article was written by Richard Harrison, Belizean investor in production and services businesses in Belize. He holds a Masters in Business Administration degree from Lancaster University.

 

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