The Company has taken steps to secure wheat supply for 2022 albeit at current prices which are currently at record highs. This will result in price increases to local consumers.
Port-of-Spain [21st June 2022]: National Flour Mills Limited (NFM) today announced that while it has been able to secure sufficient wheat stocks to guarantee that Trinidad and Tobago has an adequate supply of flour for the remainder of 2022, the cost of wheat to NFM has increased by a further 49% in 2022, due to the ongoing war in Ukraine.
As a result, in order to reduce losses in its Flour Division, National Flour Mills has had to increase the wholesale price of flour by 33%, with a suggested increase averaging 28% on the retail price of flour to the consumer.
This decision the company said, follows continued initiatives to reduce operating costs to maintain the price of flour, in the face of increased supply chain challenges and soaring commodity prices. Flour prices were increased in January 2022, NFM’s first increase since 2008, however the emerging crisis in eastern Europe and the decision by India and at least seven of the world’s wheat suppliers to curtail exports, saw a reduction in the quantities available to non-producing nations like Trinidad and Tobago and resulted in dramatic increases in the price of wheat globally.
This geopolitical hurricane has caused Spring Wheat futures to jump from as low as US$8.55 per bushel in January 2022, to as high as US$14.06 per bushel in May 2022, an increase of 64% in four months. This also represents a 138% increase in Spring Wheat futures from US$5.90 per bushel at the beginning of 2021. Mindful of the impact of a full 49% increase in the price of flour on the population, NFM has taken the decision to limit the increase in the wholesale price of flour to 33% to reduce losses in its flour division and ensure overall profitability.
Commenting on the decision, NFM CEO Ian Mitchell said, “This is the most turbulent period for wheat supply and food security in recent history. Flour is an important ingredient in our diets in Trinidad and Tobago and in response to the challenges that we are facing, we have been able to secure wheat to ensure a reliable supply of flour. However, the next few wheat shipments have been purchased at record high prices due to the crisis in Ukraine coupled with decisions by many exporting nations to halt the export of wheat. We continue to explore ways to improve the efficiency of our operations and manage those costs that we can control. While we are acutely aware of the knock-on effect that an increase in the price of flour could have in the market, we must ensure that there is product available on the supermarket shelves. We must also ensure that we can generate enough positive cash flow and operating surplus to pay for these raw materials.”
Source: Spring Wheat May ’22 Futures Interactive Chart – Barchart.com
The price increase will take effect on June 22, 2022.
QUESTIONS AND ANSWERS
- What sort of knock-on effect can we expect on 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 28% in the retail price of flour should not necessarily translate into a 28% increase in the price of everything that contains flour. - 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. Trinidad and Tobago has traditionally produced flour at competitive prices compared to other Caricom countries and we will seek to maintain this position. - The price of wheat has increased more than 49% for 2022, yet NFM has only increased prices by about 33%. Is this price increase sufficient to cover the increase in costs?
NFM has sought to minimise the impact of the wheat price increase on its customers. While we have not passed on the full increase in cost, we are confident that other internal initiatives to improve operational efficiencies will allow us to manage operating performance to make a profit with a 33% increase in price. - What can we expect of NFM’s financial performance given the price increase and the loss experienced in Q1?
It is important that NFM remains a profitable organisation as many stakeholders depend on us. While the price increase on its own will not address the challenges facing the company, we expect that the prevailing conditions will not last forever. With that in mind, we are confident that NFM will remain profitable in the short term and will continue to build from this position in the years to come. - Can we expect increases in the prices of other NFM products where wheat is a raw material input?
This 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 secure supplies and run an efficient operation, keeping our milling and processing costs as low as possible. Also, if the price of wheat falls, we will pass this on to consumers. - If the cost of grain continues to rise, will there to be another price increase by NFM?
Like all importers of raw materials, NFM’s pricing reflect the prices on the world’s markets. As we have already demonstrated, NFM will continue to do what we can to manage the volatility in the market and we will act in a responsible manner in the best interest of our customers and all other stakeholders, i.e., to minimize the extent to which increased global prices affect the end price of our products. That said, continued significant upward shifts in prices will impact the price of flour locally. Ensuring that food is available to the people of Trinidad and Tobago is our paramount responsibility. - What impact will this increase have on the cost of a basket of goods to the consumer?
The direct impact per month, assuming use of four 2Kg bags of flour per month, is estimated to be an increase of $16.64 for the typical family, e.g., an increase of $4.16 (28%) from $14.77 to $18.93 on a 2kg bag of Ibis. - Has the price of flour been increased in other Caricom countries?
Most of the Countries in Caricom have increased the price of flour at least once this year. However, even with this increase, flour in Trinidad and Tobago will still be on average 19% cheaper than it is in other Caricom countries.
