Termination of GrandBras Lease Unjustified says Chairman of the Board of Directors of Innovative Farms

Harvesters at GrandBras Estate

On Tuesday 4th October, 2016, Senior Government Minister Roland Bhola announced at a press conference that government had decided to terminate the 30 year lease of the GrandBras estate with Grenada Innovative Farms. Mr. Bhola said that the lease was being terminated because Innovative Farms had failed to increase production and to maintain a certain level of staff.

In a response to this announcement Joseph Ewart Layne the Chairman of the Board of Directors has issued a 6 page statement describing the decision as unjustified.

Mr. Layne says that the first Innovative Farms heard of the decision was through the media; that Innovative Farms was never provided with the minimum 90 days written notice of intention to terminate nor given an opportunity to remedy any alleged breach as is required by the commercial agreement under which the rights and obligations of the parties are regulated. Mr. Layne stated further that up to the time of writing all they were aware of was the media report of Minister Bhola since there was no official communication from government.

Mr. Layne has denied the charge of failure to increase production pointing out that based on government data, in the nine years prior to Innovative farms assumption of control of GrandBras average annual revenue was less than $19,000. And at no time in those nine years was annual revenue higher than $45,000. Mr. Layne says that in the first year of operations, Innovative Farms had revenues of $151,000. This was close to 700 percent better than the average annual revenue between 2006 and 2014 and 235% better than the very best year under government in the same period. He pointed out that this increase in production was achieved with less than half of the staff that was employed by government.

Mr. Layne stated that even with this increase in production, GrandBras still sustained a loss in the tens of thousands of dollars. He said that into the second year of operations it became clear that the operating model of a relatively large permanent staff and customary labour intensive methods of carrying out certain key agricultural tasks such as planting, crop care and harvesting would never succeed in turning GrandBras into a viable business.

In May of this year GrandBras farm was in the news and Minister Bhola at the time informed the nation that government had given Innovative Farms up until the end of August to get its act together.

Mr. Layne explained that GrandBras had experienced a series of crop losses which eroded its revenue base. That experience really drove home to the directors, Mr. Layne says, that the operating model had to change.

While conceding that there was contact between the government and Innovative Farms about the difficulties that Innovative Farms was experiencing, Mr. Layne stated that there was no discussion about termination of the lease. That was never an issue he emphatically stated. In the direct talks and communication with the government, the issue was always one of what can be done to make this project succeed.

Innovative Farms, Mr. Layne said, devised a restructuring and stabilsation plan which was swiftly implemented and shared with government. The objective of the plan he said was to downsize operations at GrandBras to the level where operating revenues could comfortably cover operating costs. This objective Mr. Layne said required that staff be cut and that new methods of production and crop care be employed.

Mr. Layne said that in a report dated 4th September 2016 government was informed that the objective of stabilizing operations on GrandBras farm had been achieved and that the business was ready for take off to a new level.

Government was notified, Mr. Layne said, that Innovative Farms had entered into a strategic relationship with a family business which possessed advanced agricultural equipment for planting, crop care and reaping, but little land.

Operations under the new strategic relationship, Mr. Layne stated, commenced on 2nd September 2016; and in just five weeks close to $250,000 worth of crops have been planted. The massive increase in productive capacity, Mr. Layne says, would allow Innovative Farms to pursue an export oriented strategy that will open up export markets not just for Innovative Farms but for all farmers and earn foreign exchange for the country.

Mr. Layne says he was not questioning the good faith of the government and that he recognizes that government has a legitimate interest and duty to ensure that the commercialization programme is properly carried out. He said further that, “it is my honest belief that Cabinet did not have all the material facts when it made the decision to terminate the agreement. I am convinced that no fair minded and reasonable person being properly apprised of the material facts, being aware of what is presently taking place on the estate, could have arrived at a conclusion that termination of the commercial agreement, providing for a 30 year lease, is required and justified at this time when the operations on the estate are experiencing dramatic improvements and the business is set for take off to a new level.”

Mr. Layne states that, “The terms of the commercial agreement set out how various issues are to be dealt with. They are legal requirements. All we of Innovative Farms insist on is that the terms of the commercial agreement be adhered to.” And he asks, “How can anyone have confidence in investing and doing business in Grenada when a legal arrangement with government can be disregarded and flouted in such a cavalier manner?”

The full text of Mr. Layne’s article accompanies this statement.

October 7, 2016


The Case For Grenada Innovative Farms
by Joseph Ewart Layne

On 1st September 2014 Grenada Innovative Farms, in furtherance of the policy of the Government of Grenada of commercialization of estates, took over operation of Grand Bras Estate pursuant to a 30 year lease agreement.

On 3rd October 2016 government, through an announcement by Minister Roland Bhola, informed the nation that it had decided to terminate the lease due to the failure of Innovative Farms to increase production and to maintain a certain level of staff.

As Chairman of the Board of Directors and acting General Manager of Innovative Farms, I can definitively state that as of this moment, Innovative Farms has not been directly, not to mention formally, notified of government’s decision or the reasons for it.

It is important at this juncture to note that the 30 year lease is based on a written contract which sets out the rights and obligations of the parties and the procedure to be followed if issues regarding performance of contractual obligations arise.

Of further note at this point is the fact that on 4th September 2016, Innovative Farms provided government with a comprehensive report of developments on GrandBras for the period June to August 2016. The report also outlined in concrete terms the plans for transforming GrandBras over the next 18 months. This report was sent to government via the permanent secretary in the Ministry of Agriculture, which is the communication channel set out in the commercial agreement. Receipt of the report was acknowledged and a few days later Innovative Farms received a deed for the lease together with a recently completed survey plan. The deed was already signed by the Governor General. Innovative Farms did not sign the deed due to certain concerns and issues which we wanted clarified. These concerns and issues were conveyed to government in writing and we were awaiting a response.

The next thing we heard from government was the announcement on the radio by Minister Bhola.

GrandBras Costs and Revenues prior to Innovate Farms

Based on data provided by government, in the nine years prior to Innovative Farms’ assumption of control of GrandBras average annual revenue was less than $19,000[1]. And at no time in those nine years was annual revenue higher than $45,000.

During the aforesaid nine year period, government employed an average of 26 workers on the estate. Innovative Farms was not provided with comprehensive figures for operating expenses, but based on the agreement with the union the workers were guaranteed a minimum of 6 hours work per day and the minimum wage for agricultural workers was $8.00 per hour. An annual wage bill of a minimum of $325,000 can therefore be assumed. Further, a relatively small amount of $50,000 can be added for other operating costs such as fertilizer etc. These combined figures give an annual operating cost of $375,000 to produce $19,000 revenue. This resulted in an average loss of approximately $355,000 per annum. That represents a loss of over three million dollars by government in the nine years leading up to Innovative Farms taking control.

Innovative Farms has not increased production: NOT true!

Upon taking over the estate, Innovative Farms cut the staff from 26 to 17. Through a series of developments such as persons leaving voluntarily, dismissals and rotation of staff, for the first year of operations Innovative Farms carried an average staff of 12. That was 46 per cent of the staff carried by the government. Due to the inability of the government to pay severance for the workers who were released, Innovative Farms immediately paid $109,000.00 to be used by government to fulfill its severance pay obligation. It was agreed that this sum would be treated as prepaid rent.

With the reduced staff, revenues increased from the average of $19,000 to $151,000 in the first year of operations under Innovative Farms. That represents an increase in production of close to 700 per cent and increased productivity of over 1500 per cent. Even if we compare Innovative Farms’ first year performance with the best results obtained by government in the previous nine years which was $44,869.90 in 2012, we still have an increase in revenues of 235% and in productivity of over 500%.

The notion, therefore, that Innovative Farms has failed to increase production cannot stand up to scrutiny; it is contrary to the data and simply not true.

Great improvement but not sufficient to make GrandBras a business

Even with the increase in production and productivity detailed above, GrandBras, in its first year of operations under Innovative Farms, still sustained an operating loss running into the tens of thousands of dollars as operating costs were well over $220,000.

In other words, the improvement in production and productivity though highly impressive were not enough to turn GrandBras into a sustainable business able to generate sufficient revenue to cover its costs and return a profit for its shareholders.

As the operating losses continued to build up month after month into year two of operations, it slowly but surely sunk in that the operating model of carrying a relatively large fulltime staff and using customary labour-intensive methods for many of the tasks linked to agricultural production such as clearing land, planting, weed control, fertilizing and harvesting would never result in GrandBras being transformed into a viable and sustainable business.

Crisis

The unsustainability of the model was driven home when the estate experienced a series of crop failures, losing for example (due to disease) a three acre pepper field (the largest pepper field in Grenada we were told by Ministry of Agriculture officials) and several other crops. These losses eroded the revenue base of the estate and resulted in a situation in which the estate was not able to meet its bills.

Government Intervention

By May of this year, the economic stress being experienced by GrandBras became a matter of adverse public comment. Government, utilizing the communications channels provided for in the commercial agreement, understandably intervened and met with officials of Innovative Farms. Government expressed concern about the negative publicity the farm was receiving and by extension the negative publicity that commercialization of the agricultural farms, a key policy of the government, was being subjected to.

Government expressed the wish to work with Innovative Farms and requested that Innovative Farms come up with a plan to remedy the situation. Government also requested that going forward Innovative Farms should maintain a minimum staff of eight permanent workers.

Issue of termination of the Agreement was never raised by government

Unfortunately, it was reported in the media at the time that government had given Innovative Farms up until the end of August to produce results or else. That was not the case. The commercial agreement in addition to providing for channels of communication also provides a procedure by which the agreement can be terminated. The minimum requirement is 90 days written notice to remedy a material breach identified by government. This procedure was not invoked by government. Nor was any indication given to Innovative Farms that government was contemplating invoking the termination procedure and no such threat by government was made directly to Innovative Farms. That was never an issue. In the direct talks and communication with the government, the issue was always one of what can be done to make this project succeed.

Structural adjustment

Following the intervention of the Government, several decisions aimed at radically restructuring operations on the estate were taken by the Board of Directors.

Firstly, it was accepted that the operating model of maintaining a relatively large permanent staff and utilitizing labour-intensive methods had to be discontinued forthwith.

Secondly, the management structure of Innovative Farms was changed. I was appointed the Chairman of the Board of Directors and Acting Manager of the estate and I was tasked to draw up a plan to stabilize the farm as the foundation for moving into the future. This plan was drawn up, swiftly implemented and shared with the government.

The main objective of the plan was to achieve a stable scale of operations from which GrandBras could then grow into a thriving commercial operation.

The main targets of the plan were summarized as follows:

  • Cut labour costs to the stage where monthly operating revenues comfortably cover operating costs. This required significant cuts in permanent staff.
  • Improve revenues by focusing on a few cash crops, taking into consideration market, yield, risks, expertise and experience, and planting significant quantities of each on a monthly basis.
  • Employment of temporary labour through task work for tree crops care.
  • Significant upgrades in the irrigation facilities.
  • Employment of technology for fertilizing and weed control so as to significantly reduce the reliance on unskilled manual labour.
  • Assistance from the government in the form of continued tractor services, debushing type services and technical advice and assistance from Ministry of Agriculture officials.

The plan was implemented and in a detailed report dated 4th September 2016, Innovative Farms informed government that it had achieved its objective of stabilising its operations, even exceeding it by earning a small operating surplus in the last quarter, ending 31st August, 2016, and it had embarked on a new phase of operations.

The new phase

In the September 4th report Innovative Farms informed government that it had set the following objectives for the next 18 months:

  • Massive expansion of cash crop production
  • Comprehensive rehabilitation of all land under cocoa cultivation
  • Comprehensive rehabilitation of lands under soursop cultivation
  • Expansion of banana and banana family production
  • Improvement and/or establishment of basic facilities and amenities at GrandBras farm.

Innovative Farms / HMO Strategic Relationship

In pursuit of its objectives set for the next 18 month, Innovative Farms has entered into a strategic relationship with a family business, Harvest Moon Organics (HMO), which operates a small farm in the Seamoon area. Government was informed of this development in the September 4th report.

This strategic relationship has resulted in the mechanization of cash crop production, with the introduction of tractor, rotovator, bedmaker, ripper, plastic/dripline layer and semi-automated planter and other equipment, and new methods of farming on the estate. These developments, dramatically increasing our productive capacity, are expected to exponentially improve production levels and productivity on the estate.

In this new phase of operations, in just five weeks, close to $250,000 worth of crops have been planted. Additionally, some crops planted in the stabilization period which matured in September were harvested using the tractor and other machinery. The improvement was dramatic. Fields which required over a week to reap using several workers were now harvested in a few hours, with much less labour.

Rehabilitation of Cocoa & Expansion of Soursop & Banana

Going forward, the plan is to utilize the surpluses generated from the cash crops to continue the work of a full-scale and comprehensive rehabilitation of the 36 acres of cocoa on the estate which was commenced in the stabilization period. This work involves replacement of aged cocoa trees with young plants, felling and or trimming of some large trees that provide excessive shade, continuous and consistent clearing of undergrowth, and fertilizing of all 36 acres of cocoa. So far, some 26 acres have already received attention in this ongoing rehab program, with one field, some 5 to 6 acres, completely resupplied/planted with young cocoa plants. This replanting drive has only been paused because the Boulogne Propagation Station operated by government has run short of plants. The largest cocoa field on the estate, some ten acres, has not only been cleared of undergrowth, but fertilized. Another 10 acres have been cleared of undergrowth and is being ‘maintained’ by the team of temp workers undertaking all of this.

Additionally, Innovative Farms plans to significantly increase the sour soup acreage from its present two acres to at least seven acres over the next 18 months. Increase in banana and plantain production is also planned.

Targeting the Export Market

It has always been the objective of Innovative Farms to develop into an export oriented company. The increase in productive capacity and the expected massive increase in production will put Innovative Farms in a position to pursue this strategy and thereby open up export markets which would benefit all farmers and earn foreign exchange for the country.

Agro-processing and Agri/Eco-tourism

Once Innovative Farms achieves the objectives it has set itself for the next 18 months, it will enter another phase of development of the estate which would include elements of onsite agro processing and agri/eco-tourism.

Fallout of restructuring

The reality is that there have been job losses with the restructuring of operations on the estate. Unfortunately, this was an inevitable consequence of seeking to transform an enterprise that experienced chronic losses over decades into a viable business. Innovative Farms has therefore had to take some extremely tough decisions to cut staff, to replace some manual labour by mechanization and to reduce the reliance on unskilled manual labour.

More and higher paying jobs expected in the future

We expect that as the business grows the demand for employees will increase, but what would be opened up are higher paying jobs requiring completely different skills from what Innovative Farms inherited. We expect that persons with technical skills in operating various machines, in installing, regulating and servicing irrigation equipment; in agricultural science to undertake plant research; with expertise in culinary arts, to operate a restaurant; and with expertise in marketing, in particular export marketing, accounting and management which would be vital to the expanded business operations, are the employees that would be required.

Conclusion

I well understand and accept that government has a legitimate interest and indeed duty to ensure that its policy of commercialization is being substantially implemented as it intended.

However, a legal framework in the form of signed agreements containing rights and obligations and setting out procedures for dealing with various issues that may arise was developed for the implementation of the policy.

What has happened is that government has figuratively torn up the agreement by making and communicating decisions in a manner exactly contrary to the signed agreement. How can anyone have confidence in investing and doing business in Grenada when a legal arrangement with government can be disregarded and flouted in such a cavalier manner? When hundreds of thousands of dollars in investment, not to mention the sweat, toil and stress involved, can be unfairly put at risk without any regard to the existing rights and procedure under a written agreement? What confidence would our strategic partner, that has committed hundreds of thousands of dollars in capital equipment and working capital, aimed at transforming operations on the estate, on the faith of the written agreement that we have with government, continue to have? Would it not be reasonable for them to perceive that their investment could be at serious risk if agreements – written agreements, moreso – mean nothing in Grenada?

I want to make it abundantly clear that I am not in any way questioning or challenging the good faith of the government. In fact, it is my honest belief that Cabinet did not have all the material facts when it made the decision to terminate the agreement. I am convinced that no fair minded and reasonable person being properly apprised of the material facts, being aware of what is presently taking place on the estate, could have arrived at a conclusion that termination of the commercial agreement, providing for a 30 year lease, is required and justified at this time when the operations on the estate are experiencing dramatic improvements and the business is set for take off to a new level.

What I believe the present situation highlights is the error that can result when established procedures are disregarded. The commercial agreement sets out how various issues are to be dealt with. They are legal requirements. All we of Innovative Farms insist on is that the terms of the commercial agreement be adhered to.

Joseph Ewart Layne

October 7, 2016

 

[1] During the negotiations which culminated in the commercial agreement government provided revenue data for the period 2006 to August 2014 except for 2013. No explanation was provided for the missing data. The highest revenue for the period in which data was provided was 2012 when revenue was $44,869.90. Revenue for the period January to August 2014 was $40,369.54.

Article Footer 468x60

Facebook Comments

Related Posts