National Flour Mills’ unaudited financial statements for the quarter ending June 30 2021, released earlier this week, was a testament to what businesses are experiencing all over the world. As a result of shocks along its value chain – from the acquisition of raw materials to getting packaging, to the costs associated with selling and distributing the end product – NFM, the state supplier of flour, realised $2 million in profits.
While in his chairman’s report, Nigel Romano attributed the decline in profits to many things, one of the main reasons was that US providers of the raw material – wheat – are experiencing the worst crop in 33 years. And wheat prices are rising.
Spring wheat, planted around April and reaped in late summer,
is experiencing a dramatic shortfall, according to the US Department of Agriculture (USDA) with 38,102,000 acres harvested from 46,743,000 acres planted. In addition to a combination of disruptions, the average price of wheat rose from US$5.49 per bushel in 2020 to US$7.27 in 2021, according to Macro Trends.
NFM: costs leave profits unleavened
Despite a $210 million turnover, slightly higher than the $206 million it made in the same period last year, NFM incurred a 12 per cent increase in the cost of sales – the cost incurred to acquire materials and labour to produce the final product – going up from $150 million in 2020 to $168 million this year.
Sales and distribution which includes promotion, packaging, warehousing, storage and delivery also went up from $17 million to $19 million.
In his report, Romano said the main culprit behind the hike in cost of sales was the cost of getting raw materials at its source, along with packaging, freight and transport.
The result was an 84 per cent reduction in profit, from $13,686,000 in 2021 to $2,145,000.
But while NFM’s profits were declining, the retail price of flour remained the same. According to the Ministry of Trade’s reports on supermarket prices, there was even a slight reduction.
In April, a 10kg bag of flour ranged between $73.30 and $77.50. In July, the prices ranged between $57 and $59.99. A 2kg bag of pre-packaged flour went for between $12.95 and $14.25 in April but dropped to between $11.95 and $13.99 in July.
NFM CEO Ian Mitchell told Business Day the company was doing everything it can to keep the price points at a level reasonable to the consumer, at whatever cost.
[caption id="attachment_906870" align="alignnone" width="1024"] An aerial view of NFM head office and plant on Wrightson Road, Port of Spain. - Photo by Jeff K. Mayers[/caption]
“When you look at what proportion of our costs are directly related to the raw material input, it is really the lion’s share,” Mitchell said. “But we are mindful of the fact that we are in a trying time. There are a lot of families that are disadvantaged, there are a lot of people that are out of work. So we take these things into consideration whenever we make these decisions, because our product is put into many different industries and processes. So we understand
