GEISHA KOW­LESSAR-ALON­ZO

With soar­ing wheat prices, sig­nalling more food in­fla­tion world-wide, Ian Mitchell Chief Ex­ec­u­tive Of­fi­cer at the Na­tion­al Flour Mills (NFM) says the com­pa­ny may have no choice but to re­view prices if cur­rent trends con­tin­ue.

NFM prod­ucts in­clude flour, rice, an­i­mal feed, and pet food.

How­ev­er, the com­pa­ny em­pha­sised that as wheat prices con­tin­ue to in­crease, it will con­tin­ue to do every­thing with­in its con­trol to keep its pro­cess­ing costs down.

The Busi­ness Guardian reached out to Rene De­Gannes, Gen­er­al Man­ag­er Kiss Bak­ing Com­pa­ny, on whether pos­si­ble in­creas­es could af­fect Kiss’ op­er­a­tions.

How­ev­er, De­Gannes said it was “pre­ma­ture to make a com­ment at this time.”

Mitchell said the NFM is acute­ly con­scious of the knock-on ef­fect that an in­crease in the price its prod­ucts could have with­in the wider mar­ket, adding that the NFM has been fo­cussing its en­er­gies on op­ti­mis­ing the lev­el of ef­fi­cien­cy through­out its op­er­a­tions, to keep the price of its prod­ucts com­pet­i­tive.

But, the CEO said the last 12 months have been par­tic­u­lar­ly chal­leng­ing for the grain sec­tor.

He ex­plained that gen­er­al­ly ad­verse weath­er con­di­tions have af­fect­ed yields, sup­ply chain is­sues have in­creased the cost of agri­cul­tur­al in­puts, like fer­til­iz­ers; and the over­all im­pact of COVID-19 have all con­tributed to con­tin­u­ous in­creas­es in the price of grains, glob­al­ly.

As a point of ref­er­ence, Mitchell said 2020 wit­nessed the low­est wheat yields since 2007.

“Grain prices have con­tin­ued to in­crease through­out the year, and we ob­vi­ous­ly can­not sell our prod­ucts at a price that is be­low what they cost to pro­duce, so if these costs trends con­tin­ue, we will have no choice but to re­view our prices,”Mitchell ex­plained.

The Wall Street Jour­nal re­cent­ly re­port­ed that a poor har­vest of spring wheat and con­cern over the win­ter crop have pushed prices for the grain to their high­est lev­els in years and sig­nal more food in­fla­tion ahead.

It cit­ed that drought across the North­ern Hemi­sphere as the main cul­prit, adding that strong de­mand around the world, snarled sup­ply lines and ris­ing costs of farm in­puts, like fer­til­iz­er and fu­el, are con­tribut­ing.

Fur­ther, Mitchell ex­plained the price of Spring Wheat has moved from as low as $5.00 per bushel in 2020, to as high as $10.91 per bushel this year

In ad­di­tion, he said the sup­ply chain dis­rup­tions as a re­sult of the pan­dem­ic have caused the cost of freight to sky­rock­et, fur­ther com­pound­ing the land­ed cost of all grain and oth­er ma­te­r­i­al in­puts.

Not­ing that the NFM is a price tak­er, Mitchell said the com­pa­ny has no con­trol over the price/cost of its ma­jor raw ma­te­r­i­al in­put, ie., wheat, which it im­ports and mill to pro­duce flour.

Ac­cord­ing to the UK To­day, bread prices have in­creased 26.7 per cent over the past year.

It al­so not­ed that the price of oth­er es­sen­tial foods could al­so in­crease af­ter wheat prices reached a nine-year high.

In may this year the Ja­maica Flour Mills (JFM) an­nounced in­creas­es in the prices of its prod­ucts.

The ad­just­ments will see in­creas­es in prices of be­tween eight and 11 per cent for flour prod­ucts from the com­pa­ny.

JFM’s man­age­ment had cit­ed that since the be­gin­ning of the year, “grain prices tra­di­tion­al­ly trad­ed on stock ex­changes around the world have seen un­prece­dent­ed in­creas­es, with corn in­creas­ing in ex­cess of 46 per cent,” and “soy by greater than 18 per cent.”

How has NFM man­aged to keep its prices down this far?

Ac­cord­ing to Mitchell, the NFM has been fo­cused on do­ing things bet­ter, not­ing that the com­pa­ny has

suf­fered no ma­jor stock­outs of any of its ma­jor prod­ucts.

“We en­gaged our em­ploy­ees and their rep­re­sen­ta­tive unions ear­ly and open­ly ven­ti­lat­ed the is­sues. Our work­force was ex­treme­ly sup­port­ive, and we com­mit­ted to tak­ing mea­sures to keep the busi­ness op­er­a­tional,” Mitchell said.

Al­so, he said some of these mea­sures ul­ti­mate­ly re­sult­ed in the com­pa­ny be­ing able to re­duce in­di­rect man­u­fac­tur­ing cost per tonne by four per cent ver­sus the pri­or year de­spite the re­duc­tion in work hours as a re­sult of the cur­few.

Ad­di­tion­al­ly, the NFM said it has al­so in­tro­duced ef­fi­cien­cy im­prove­ment ini­tia­tives that re­sult­ed in re­duc­tions in the man­u­fac­tur­ing costs that were with­in its con­trol.

Dis­rup­tions in the glob­al sup­ply chain

Like oth­er in­ter­na­tion­al com­pa­nies the NFM has al­so been af­fect­ed in a ma­jor way by dis­rup­tions in the glob­al sup­ply chain.

Mitchell ex­plained the com­pa­ny has had to re­for­mu­late its ma­te­ri­als re­quire­ments plan­ning mod­el to cope with the in­her­ent un­cer­tain­ty.

How­ev­er, he not­ed, “That be­ing said, we be­lieve that we have man­aged bet­ter than most. Our ma­jor prod­ucts have re­mained avail­able through­out the year.”

The NFM’s af­ter-tax prof­its plunged by 84.3 per cent for the first six months of its 2021 fi­nan­cial year.

It’s af­ter-tax prof­its for the six months from Jan­u­ary 1 to June 30, 2021 de­clined to $2.1 mil­lion from $13.6 mil­lion for the cor­re­spond­ing pe­ri­od in 2020, ac­cord­ing to its fi­nan­cial state­ment.

De­spite those fac­tors, NFM chair­man Nigel Ro­mano had not­ed that the com­pa­ny was able to achieve a 1.6 per cent in­crease in rev­enue year-on-year.

NFM’s rev­enue in­creased to $210.1 mil­lion for the first half of 2021, com­pared with $206.7 mil­lion for the first half of 2020.

And the com­pa­ny al­so in­curred a steep de­cline in prof­itabil­i­ty, post­ing an af­ter tax prof­it of $4.1 mil­lion, for the nine-month pe­ri­od end­ing Sep­tem­ber 2021 due to chal­lenges brought on by the pan­dem­ic and cli­mate change.

So how is the NFM man­ag­ing un­der these con­di­tions?

Mitchell said the com­pa­ny will con­tin­ue to dili­gent­ly man­age the fac­tors that re­main with­in its con­trol, adding that the team at NFM is com­mit­ted to pro­vid­ing the high­est qual­i­ty prod­ucts.

“And this is a re­spon­si­bil­i­ty we take se­ri­ous­ly. Notwith­stand­ing, we al­so un­der­stand the forces act­ing on our bot­tom line and will take the steps nec­es­sary to op­er­ate the com­pa­ny for the long-term while safe­guard­ing the liveli­hood of our em­ploy­ees,” Mitchell as­sured.

And if the com­pa­ny con­tin­ues to op­er­ate at a loss, then what’s next?

Mitchell was quick to point out that while there has been a sig­nif­i­cant de­cline in prof­itabil­i­ty, the NFM has not record­ed a loss for the year thus far.

Fur­ther­more, he said, run­ning at a loss is not an op­tion.

Mitchell al­so not­ed that the NFM has al­ready start­ed tak­ing the steps nec­es­sary to as­sure the busi­ness’ sus­tained vi­a­bil­i­ty.