Quaker Oats Company closes processing plant in Nicaragua: 150 unemployed

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The global logistics crisis, coupled with the perverse effects of the 2019 tax reform in Nicaragua; the deterioration of the business climate; and the prevailing legal insecurity in the country, combined to force the closure of Cereales de Centroamérica SA (Cersa), which has caused the unemployment of some 150 people, according to four sources who spoke to CONFIDENCIAL on condition of anonymity.

Cersa was one of two Central American companies that processed oat grains from Chile or Canada, to supply El Salvador, Honduras, Nicaragua, Costa Rica and Panama with Quaker branded products, owned by PepsiCo, a transnational corporation that also owns Marques Pepsi, Doritos, Lays, Gatorade, Lipton, etc. The company covers part of the North American market with another factory in Guatemala.

About four years before Cersa, DASA, a company dedicated to transporting oats sold on the local market, also went bankrupt. A former Cersa employee, who lost his job when the company closed and asked to be identified as “Juan Carlos”, said he and his colleagues witnessed the harassment that the office of the mayor of Managua and the Ministry of Health (Minsa) applied against DASA until the owners decided to close it.

“They came to demand that the company invest in warehouses or patios, on the pretext that it was to improve the sanitary aspects, but it was to force the closure of DASA, which finally happened. Cersa still had a contract with Quaker, so they kept working, now with a new distributor,” said Juan Carlos.

The nightmare of being too small

Although Cersa was able to continue working for the transnational company, the global logistics crisis, which resulted from the covid-19 pandemic, put the Nicaraguan company in a situation that would lead to bankruptcy. A lack of containers, rising freight rates and the small size of the current operation in Managua showed PepsiCo executives it was time to make changes.

The leader of a national agribusiness, who asked to be identified as “Javier”, explains how the complex global supply chain has collapsed following the global crises of recent years (Covid-19, the war in Ukraine , the closure of the Chinese port of Shanghai, and the time the container ship Ever Given was stranded in the Suez Canal).

“The supply chains (production, inputs, transport, fuels, vessel and container availability) of agricultural raw materials are oversaturated, and that includes oats, so the most logical thing to do is to consolidate logistics by a few places, to make it easier to move them around the world. If you are a country with a very small production, the shipping companies have little incentive to include you in their program,” he explained.

This is what happened to Cersa. The administrator of a company that processes and distributes food in the country, explained that after many years of processing for Quaker, the figures were no longer favorable to Cersa’s interests, “due to a problem logistics: they needed their operation to be bigger, to deal with the cost of the raw material and the double freight, because they re-exported the oats”.

Who will invest in Nicaragua?

In reality, it was more than a logistical problem, admits this administrator, recalling the high tax burden that companies in Nicaragua have to face; the general insecurity the country is experiencing and the high cost of electricity, which is a driving factor in any industrial process like this, which applies heat to grain; grinds it, fortifies it with iron, vitamins, calcium… to then package and distribute it.

“PepsiCo, owner of the brand, did the numbers and saw that it was better to close its operation in Nicaragua and take it to Chile – where the cereal is grown – instead of continuing to work with Nicaragua, where it faced excessive costs. The option was to invest money in this plant to make it efficient, but you have to think twice before investing money in Nicaragua,” said an industrialist familiar with the operation.

Having experienced the process from the inside, “Juan Carlos” reports that this year, Cersa began to receive smaller and smaller shipments and to process fewer orders. His perception is that “Quaker looked for a way to continue to guarantee their product and continued to work with Chile”.

Although it did not completely abandon Cersa, falling orders caused it to cease operations in February.

“Cersa only worked for Quaker. It was exclusive to them. Quaker specified how to mix, how to package and consolidate product, where and when to ship orders, and more. When the company closed, more than 150 mechanics, electricians, technicians, truck loaders, packers, maintenance personnel, engineers, storekeepers, administrative personnel, forklift drivers, etc. found themselves unemployed,” he said.

This article was originally published in Spanish in Confidencial and translated by our staff

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