The Deputy Chairman of the Cyprus Grains Commission, established in 1960 as a state-controlled monopoly to ensure low prices for grain imports and maintain the country’s strategic reserves, resigned this week, but urged the government to restructure it and make it more competitive to benefit farmers and consumers.
In his resignation letter submitted on Wednesday on the grounds of increased professional commitments, Alexis Tsielepis said that he worked hard during the past 13 months, despite the numerous interventions and undermining of the Commission’s work.
His conclusions are that the state should get more involved and make the Commission more competitive to keep grain prices at low levels and to ensure the uninterrupted supply both to farmers and to households.
Numbering the problems at the Commission, Tsielepis (photo at left) noted that those in key positions did not work in a proper manner to face the problems, but with the blessing of past governments “kept the ship afloat, with the hope that it would someday reach a safe port and not sink.”
“There is no free competition in the grains market, as evidenced from the shortfalls in the CGC’s stores. Until the next shipment is received, competitors take advantage and hike prices. There seems to be some collusion, a cartel even.”
But Tsielepis said that the biggest problem was the Commission’s high operational cost.
“Using simple math, the CGC needs to at €25 a tonne to its buiying price to cover wages. Of these, €16 go direct to the payroll. If the CGC’s competitors need a €5-6 margin to cover their own costs, instead of adding a reasonable profit margin and selling their grains at €8 to €10 a tonne, they sell €16 or €18 a tonne, thus making super profits and still appearing more competitive than the CGC prices. In other words, through its high payroll, the CGC is contributing to maintaining prices at high levels, with the whole of Cyprus burdened with higher prices for bread, milk, souvlaki, halloumi, etc.”
Tsielepis said that there is a need for a competitive grain’s commission, but based on new foundations, and not necessarily shutting it down or privatising it, as some part of the media have suggested.
“I am convinced that if the CGC closes down, the market will become an oligopoly by some suppliers who will continue to impose cartel conditions, with prices continuing to rise, as a result,” he said, adding this would impact the consumer basket by raising the prices of bread and any flour-based goods, as well as dairy products and meat.”
The “provocative salaries” that some refer to as an excuse to shut down the CGC are no different from the admittedly high wages in the public sector, while the idea to change the CGC’s role to that of a regulator has a real risk of failure, as is the case of other regulators, Tsielepis said.
He referred to the electricity regulator (RAEK) that has not introduced the proper incentives to open up the market of electricity providers and lower consumer prices, while the efforts to regulate petrol prices almost shut us out of the oil markets, he said.
“When I first decided to resign, some four months ago, I undertook to complete the CGC’s restructuring plan as part of a three-man team. This is a plan that could have been a model for the restructuring of any semi-government organisation and has already been submitted by the CGC board to Agriculture Minister Nicos Kouyialis, as well as the Ministry of Finance and the Public Sector Reform Taskforce,” Tsielepis said.
He explained that according to the plan, the CGC would maintain its strategic silo in Limassol and establish a new CGC commercial enterprise, both state-owned.
Rejecting talk of privatization as “unfounded” and “a mistake by the government”, Tsielepis added that the aim was to make the CGC more competitive.
Concluding, Tsielepis had harsh words for fellow CGC board member Panikos Hambas, president of the communist-led farmers’ union EKA, who submitted his own proposals to restructure the CGC, but not to the board and instead distributed it politicians, trade unions and the media, without even consulting any other farmer groups.
“In it, I have identified 23 flaws, as it is primarily ideological and has no budgeting or costing analysis, or any indication of a new structure, concluding that the CGC’s own study aims to break up the Commission and its privatization, despite continued assurances from the board and the Agriculture Minister himself.”
Tsielepis added that Hambas’ aim was “self promotion and populism, and not rescuing the CGC and the better interests of the farmers.”
Meanwhile, the cattle farmers’ association POA, talking last December about fines imposed by the watchdog Committee for the Protection of Competition (CPC) for price-fixing and other irregularities, said that the CPC should also investigate the Grains Commission since it has the ability to store huge volumes of grain and is able to control feed prices.
The cattle farmers said thet Finance Minsitry Permanent Undersecretary Christos Patsalides, who headed the Commission from 1997 to 2013, tolerated irregularities for years.
“The Auditor-General constantly kept pointing out that the Commission did not keep accounts,” the association said. “And they kept replying the accounts are ready – but we have yet to see them.”
Recently, CGC Chairman Demetris Theocharous told a parliamentary hearing that the outrageously high wages and overstaffing at the Commission will result in a forced shut-down within two years if it is not radically reorganised and allowed to operate as a private-law entity.
Theocharous told the House Finance Committee last October that 70% of the Commission’s €5 mln annual budget – or about €3.5 mln – goes towards its unsustainable payroll for 64 staff – 30 permanent and 30 term-contractors.
According to Theocharous, the average annual salary for a permanent staff member is €80,000, and for a term-contractor €34,000.
“In order for it to be viable, its budget needs to be drastically slashed, to €1.5 mln.”
Theocharous said that the Commission’s failure to adapt to the new conditions saw many businesses resort to independent grain imports, resulting in a bloated, non-viable organisation.
“If it is left to operate under current conditions, the Commission will be forced to shut down within two years,” he said.
Cyprus consumes 600,000 tonnes of grain every year, 80% of which is used as cattle feed and the Commission recorded losses to the tune of €2 mln in 2014.
Asked by MPs at the time to confirm talk of selling the Commission to foreign investors, Theocharous said that although no formal contact has taken place, investors from the United States and the Netherlands visited the Commission’s sites through the agriculture ministry.
