Soaring Wheat prices and shipping costs push NFM to increase the price of flour

The Company can no longer maintain prices in the face of rising international price increases.

Port-of-Spain [29^thDecember 2021]: With the increasing cost of wheat and freight globally, National Flour Mills today announced its decision to increase the wholesale price of flour by between 15% and 22%, with a suggested increase averaging 19% on the retail price of flour to the consumer.

This decision, the company said, follows several internal initiatives to improve operating efficiency and reduce processing costs in an attempt to contain expenditure and maintain the price of flour, in the face of increased supply chain costs and soaring commodity prices. Flour prices have not been adjusted since 2008.

Commenting on the decision, NFM CEO Ian Mitchell said: “This was by no means an easy decision, as we did everything within our control to try to hold our prices; but with the staggering increases in raw material and shipping costs, we were left with no choice but to make the adjustment. We are acutely aware of the knock-on effect that an increase in the price of flour could have in the market, but we cannot sell a product for less than it costs to produce.”

NFM noted that the price of Spring Wheat moved from as low as USD5.00 per bushel in 2020, to as high as USD10.91 per bushel this year, additionally, the cost of freight has increased more than 110%. The following graph illustrates the increases in the price of wheat.

Source: Spring Wheat Mar ’22 Futures Interactive Chart – Barchart.com

During the past 18 months, NFM sought to offset the increasing external costs by focussing on productivity measures to optimise the levels of efficiency throughout its operations. Some of these measures ultimately resulted in the company being able to reduce indirect manufacturing cost per tonne by 4% despite a reduction in work hours necessitated by the Covid 19 pandemic curfew.

The increased prices of grain and the rise in supply chain costs are affecting markets worldwide.

Generally adverse weather conditions have affected crop yields, supply chain issues have increased the cost of agricultural inputs, like fertilizers; and the overall impact of Covid-19 has caused shipping costs to skyrocket.

NFM chairman Nigel Romano said: “It’s an unfortunate analogy, especially given the realities of climate change, but we have been confronted by the perfect storm –– 2020 witnessed the lowest wheat yields since 2007, and the supply chain disruptions caused by the pandemic have increased freight costs significantly, further impacting the landed cost of all grain and other material inputs.  NFM is a price taker.  We have no control over the landed costs of our imported raw materials, which now account for 64% of our production costs.  I think the team is doing a good job improving our internal processing and driving other costs down, especially during these trying times, and we will continue to find ways to continually improve.”

The price increase will take effect on January 3, 2022.

 

QUESTIONS AND ANSWERS

1. What sort of knock-on effect can we expect with the cost of other food items like bread, roti and doubles which use flour as a main input?

• While flour is the main ingredient in a range of food items, it is not the only one, so an average increase of 19% in the price of flour should not necessarily translate into a 19% increase in the price of everything that contains flour.

2. Should the price of wheat return to its previous levels, would NFM be prepared to reduce prices?

• Yes!  NFM operates in a competitive environment, and we are continuously exploring ways to improve our levels of efficiency and to ensure the consumer gets the best value for money.

3. Has the government imposed price control on NFM?

• No. NFM is a publicly listed company on the Trinidad and Tobago Stock Exchange. The majority of its shares (51%) is owned by the Government of Trinidad and Tobago through National Enterprises Limited (NEL), and the other 49% is publicly held. The company operates in the open market and is not subject to price controls.

4. The price of wheat has increased more than 100%, yet NFM has only increased prices by about 19%. Is this price increase sufficient to cover the increase in costs?

• During the past 18 months NFM has embarked on a number of initiatives to improve its levels of efficiency and streamline internal processes in an attempt to reduce processing costs. We are acutely aware of the knock-on effect that any increase in the price of flour, a basic ingredient in many products, could have in the market, so we have set the price at the lowest practical level to maintain commercial viability.

5. Has NFM communicated with the other manufacturers/distributors of flour to determine what the new price should be?

• No. To do so would breach the fundamental tenets of operating in an open and competitive market. The price increase was based on commercial factors –– the increased price of wheat, the higher costs of shipping, etc., coupled with the costs of processing, packaging, distribution, and the other components required to bring finished product to the market. The commercial challenge is to keep that price as low as possible while operating profitability.

6. What can we expect of NFM’s financial performance given the price increase?

• Relative to the greater than 100% increase in the price of wheat and shipping, it would be fair to say that a 19% increase in the price of flour is marginal and is intended to ensure that the company continues to operate with reasonable business margins.  We expect to earn market attractive returns going forward.

7. Is there expected to be any other increases in products by NFM, where wheat or flour is also a raw material input?

• That will be determined by factors beyond NFM’s control, i.e., price of raw material and shipping. However, we will continue to focus on the items within our control and do everything we can to run an efficient operation and to keep our milling and processing costs as low as possible.

8. If the cost of grain continues the upward trend is there expected to be another price increase by NFM?

• We cannot sell a product for less than our production costs, especially where raw and packaging material makes up 64% of that cost.  Therefore, if the cost of these inputs continues to increase, we will have no choice but to adjust the prices of our products to reflect those increases.

9. What impact will this increase have on the cost of a basket of goods to the consumer?

• The direct impact, assuming use of 4 2Kg bags of flour per month, is estimated to be an increase of $10.00 for the typical family, e.g., an increase from $12.50 to $15.00 on a 2kg bag of Ibis.

10. Has the price of flour been increased in other Caricom countries?

• Barbados, Jamaica and Guyana have all increased prices so far this year.  Jamaica increased prices in May and again in October.  Barbados increased in February and Guyana in November.

 

For more information, contact:

The Office of the Chief Executive Officer

National Flour Mills Limited

27-29 Wrightson Road, Port of Spain,

Republic of Trinidad and Tobago, W.I.

868 625 2416 Ext 2151