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Persistent Product Shortages in Puerto Rico Highlight Urgency for Inventory Tax Reform

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Persistent Product Shortages in Puerto Rico Highlight Urgency for Inventory Tax Reform

Despite improvements, products remain missing from Puerto Rico shelves

Although there was an improvement, at the end of 2023, the level of products not available on the shelves of supermarkets and businesses in Puerto Rico remained above years prior to the Covid-19 pandemic, according to data released this Friday by Francisco Cabrero Ojeda, president of Professional Market Research (PMR).

Last year the indicator culminated with 16.3% of missing products in the country’s shelves and although the figure represents a reduction when compared to 2022, when it was almost 20%, such a deficiency of products is well above the levels of missing products in the United States, according to Cabrero Ojeda.

In the United States, last year, the level of missing products – what is known in technical jargon as “out of stock” – was 8.3%. Meanwhile, last month the level of shelf shortages was 15.54%, according to PMR data.

“Puerto Rico, precisely, is a market with a high population density, with logistical challenges that we all know and an inventory tax, so these three combinations make this market a perfect area for out of stock,” said Cabrero Ojeda.

According to data collected by the firm Aquino, De Córdova, LLC, the products most affected by the out of stock in Puerto Rico are dairy and non-food products, with liquor being the least affected.

The lack of products worsened after the pandemic, when it increased by 250% nationwide. Fewer products means fewer sales, and in dollars and cents, such a deficiency meant an impact of over $2 billion for the US economy, Cabrero Ojeda said.

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The president of PRM stressed that, in Puerto Rico, the out of stock of 16.3% represents an opportunity of $495 million.

The lack of products on shelves has contributed to consumers changing their purchasing habits and looking for other brands or leaving stores.

According to data from the survey “Portrait of the Food Industry in Puerto Rico 2023,” the main payment method in supermarkets, occupying 33% of transactions, was carried out by beneficiaries of the Nutrition Assistance Program (PAN).

These data reveal that, at least, one in every three families on the island makes purchases subsidized by federal funds, while, in the United States, only one in every 10 families is dependent on the federal program, Eduardo González Green confirmed in his presentation. , certified public accountant (CPA).

“In my clients, when I compare stores with a low PAN percentage (of customers) with another store with a high PAN percentage, this store with a higher percentage, the gross profit is lower, because they are susceptible to the price. . When there was financial aid, […] So, the stores that had a higher percentage of PAN had a better gross profit,” González Green explained.

This payment method was followed by debit with 28% and cash transactions with 17%, appearing as the third most used payment method last year.

The study also revealed that the average spending per consumer was $35.34, a figure to which about $6 is added due to inflation increases, the CPA indicated.

89.7% of supermarkets surveyed indicated that prices continue to increase, according to the study.

According to Cabrero Ojeda, one of the main elements that most affects the logistics and product purchasing process is the inventory tax, since many companies choose not to buy in excess so that they are not charged extra for that rate.

“What having a tax does is that it limits the ability of a company to buy goods to be able to resell them and many times they limit themselves in that purchase so that they are not going to keep it and it is not going to cost them. So, there is a limitation on the purchase of products and that limitation causes out of stock,” explained Cabrero Ojeda.

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If the inventory tax is eliminated, the level of shortages in shelves would decrease between 3% and 4% in supermarkets, Cabrero Ojeda project. However, the executive acknowledged that he would not solve the entire problem, given that Puerto Rico is an island that imports a large part of what is consumed.

For his part, González Green explained that Puerto Rico has an average of 20 days of inventory, similar to the United States.

However, for the CPA, having only 20 days of food inventory results in “a national emergency” given the possibility of an emergency occurring, which is why it urged that alternatives be identified to increase the inventory such as eliminating The tax.

“If you increase four days – of the 20 days of inventory – that is 20% that you are increasing. We have never had levels of 26 and 27 days in a supermarket because they are perishable products, that is, we typically do not wait long, but increasing four days seems phenomenal to me,” González Green told El Nuevo Día.

This week, the executive director of the Fiscal Oversight Board (JSF), Robert F. Mujica, insisted that the government and the Legislature must identify the necessary alternatives to eliminate the inventory tax, due to its impact on economic development and for security. .

“Reforming the inventory tax is essential to guarantee supplies to Puerto Rico, prepare for emergencies and help Puerto Rican families buy the products they need,” said Mujica.

The Lower House approved House Bill 1798, which seeks to establish a fixed payment for the inventory for a period of five years to identify how to replace what its disposal would cost municipalities. The measure is under consideration by the Senate, according to the legislative process.

Municipalities receive $237 million annually from the inventory tax, according to data from the Board.

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One of the alternatives that the CPA suggested to El Nuevo Día is that they consolidate the administrative services of the municipalities, so that the savings necessary to eliminate the inventory tax are generated.

John Peguero contributed to this story.

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