The price of read, one of the staple foods in Nigeria, is not likely to come down soon. This is because the cost of producing flour, one of the major materials of production, is on the rise. For instance, the Flour Mills of Nigeria Plc (FMN), has announced that it spent a whopping N1.419trn on input costs during the first half of the year, 2024.
This represents 80.4 per cent increment from N786.578bn spent by the company in the corresponding period of 2023. Now, not withstanding the high cost of bread and other products of flour, the company said that the amount spent on producing flour represents 92.38 per cent of the total cost of sales of N1.536trn recorded by the food products firm during the period under review. That raises an alarm for a likely increase in flour and a corresponding increase in the prices of bread, cake and other products.
This is on the back of a high inflationary period in 2024 which has seen the cost of goods and services rise across the country.
The information is contained in the unaudited half-year results of the company. The amount spent also represents 83.62 per cent of the total revenue of N1.697trn recorded by the firm during the period under review from N964.65bn in 2023.
A cursory look at the financials showed that FMN Group’s Gross Profit saw a significant 53 per cent increase to N161.1bn, while Operating Profit grew by 40 per cent to N105.9bn driven by operational efficiency and cost optimisation
Profit Before Tax returned to historical levels with N19.7bn in half year 2024 from a loss position in 2023. The company also maintained a strong cash position of N149bn, providing operational flexibility and investment capability despite increasing cost of funding.
Some of the cost pressures were fueled by the removal of fuel subsidies, exchange rate harmonisation, and Naira depreciation.
Additionally, macroeconomic inflationary pressures, particularly evident in the domestic market with heightened average inflation, further contributed to the challenges.
In Nigeria, manufacturers predominantly resort to self-generated power due to inadequacies in the state power grid infrastructure.
Despite nearly a decade passing since the privatisation of the power sector, there has been little to no tangible improvement in electricity supply for manufacturers.
Consequently, they heavily rely on self-generation, incurring substantial costs. Yet, reliable power infrastructure remains the cornerstone for bolstering the manufacturing sector and fostering job creation.
Nigeria’s headline inflation rate in September 2024 rose to 32.70 per cent, up from 32.15 per cent in August 2024, marking a 0.55% per cent increase month-on-month.
This is according to the National Bureau of Statistics (NBS) Consumer Price Index (CPI) report which stated that inflation during the month was propelled by increases in transportation costs and food prices.
This is coming on the heels of increases in petrol prices by the NNPCL since early September.
On a year-on-year basis, the rate was 5.98 percentage points higher than the 26.72 per cent recorded in September 2023, indicating a significant increase in inflation over the past year.
Additionally, on a month-on-month basis, the headline inflation rate in September 2024 was 2.52 per cent, 0.30 per cent higher than the 2.22 per cent recorded in August 2024.
This indicates that the average price level increased at a faster rate in September compared to August 2024.
Core inflation, which excludes volatile agricultural products and energy prices, stood at 27.43 pe cent year-on-year in September 2024, an increase of 5.59 percentage points compared to 21.84 per cent in September 2023.
The largest price increases were seen in items such as rent (actual and imputed rentals for housing), intercity bus journeys, taxi fares (under passenger transport by road), meals at local restaurants (accommodation services), and others.
There is fear that the surge may lead to more cost pressure on manufacturers, especially on gas and other raw materials. To mitigate this risk, most cement manufacturers increased prices.
Commenting on the Half year results, Group Managing Director/Chief Executive Officer of FMN, Mr. Boye Olusanya said, “At the core of our business operations and commitment is to build a sustainable business that is big in local content development and utilisation.
“This commitment is what we leverage as a Group in withstanding both existing and emerging volatility in the business environment.
“Despite the complex macroeconomic environment, including significant FX volatility and high interest rates, we have maintained solid growth in the Half year’24 across all our business segments while managing our costs and operational efficiency.”
The Food segment is said to have recorded a 74 per cent increase in revenue to N1,140.2bn. The improved profitability is driven by optimised material costs. The report claims that the Sugar segment achieved an 84 per cent revenue growth to N274.2bn.
