Jun 2011 Financial News

NFM loses $2.5m in first quarter

Jun 08, 2011

A global wheat production crisis has played havoc on the profits of State company National Flour Mills.

Unwilling at first to pass on the higher cost of wheat on the world market to local consumers, the company says now it will have no choice but to raise the price of its flour products.

That price hike will come sooner rather than later, NFM says.

The evidence of global climate change and consequent rampant wheat prices is documented in the Wrightson Road, Port of Spain flour producer's first quarter results released late last month.

In its first quarter ended March 31, the company suffered a loss of $2.5 million.

The sharp turnaround in NFM's financial fortunes seems amplified when compared to the company's results for the same period last year.

In the first quarter of 2010, NFM made a profit of $6 million.

Governor of the Central Bank Ewart Williams warned recently of the impact of escalating commodity prices.

Williams said last October that the levels of inflation experienced in the local economy had come from domestic sources and was not a reflection of the increases in the prices of imported goods.

He said, "What is an area of concern with the inflation figures is that the bulk of the rise in inflation has come from domestic sources, the increase in prices of domestic product. You would have seen all around the world the prices of imported goods have been increasing sharply- wheat, rice and edible oil.

"Our inflation data are not yet showing the data of this and that is a cause for concern because if we are 13.2 per cent now and the prices of imports have not yet passed through I'm concerned about what will happen a few months down the road."

By the time the Central Bank released its Monetary Policy Report up to April this year, it was clear that a hike in the price of flour and other basic commodities was inevitable.

The report said: "In light of the spiraling international food prices, domestic price inflation is anticipated to regain momentum as the prices for some key global food items such as wheat and dairy products, corn, oil and fats and sugar have been consistently increasing in recent months."

"Further, Nutrimix, one of this country's flour mills, stated that the cost of imported wheat rose by approximately 50 per cent recently, due to erratic weather patterns experienced by major producers. As a consequence domestic consumers may soon be required to pay more for flour."

NFM chairman Jacqueline Burgess confirmed in her statement to shareholders in the company's first quarter results that it was becoming difficult for NFM to continue absorbing skyrocketing prices of grain.

"The reality is that grain prices are approaching historically high levels and unless prices abate, the company will have to make fair adjustments to its selling prices," Burgess said.

"The primary contributor to our 2011 position has been rising grain prices. On a year on year basis wheat increased by an average of 60 per cent and prices continue to trend upward."

"Going forward for the rest of the year the company will continue to place emphasis on improving operational efficiencies and will also look at the rationalising and diversifying the range of products currently offered," she said.

Burgess in a telephone interview with the Business Express last week, admitted there was an inevitability about the looming price increase.

She said NFM had not decided on when the increase will take effect or by how much flour will be increased.

"We cannot continue to supply at the same price. We have not been passing on that increase to the consumers but I think sooner than later we will have no choice but to increase the prices because we would continue to be in a losing position," she said. "We are trying in some ways to find a little buffer where we can make something without a strain on the pockets of the consumers so those are things we are toying with right now. We are strategising to save our consumers to maintain their purchasing power because we need them."

Burgess added: "Everywhere else in the Caribbean they have raised prices ... it's only Trinidad and Tobago have not because flour is such a basic product so many people use. Raising the price would affect poor people. We have to be very careful of how we tackle it at this point."

The Food and Agriculture Organisation of the United Nations reported recently that from July to September 2010, wheat prices had surged by 60 to 80 percent in response to drought-fuelled crop losses in Russia and a subsequent export ban by the Russian Federation.

Rice and maize prices also rose during that period.

By December 2010, the FAO Food Price Index had topped its 2008 peak, with sugar, oils and fats increasing the most.

In March 2011, the index dropped for the first time after eight months of continuous price spikes.

"The cost of basic food staples remains high in many developing countries, making life difficult for the world's poorest people who already spend between 60 and 80 per cent of their meagre income on food," the FAO says.

On March 18, the Caribbean Millers Association announced it could no longer continue to absorb the sharp increase in wheat and members would be increasing flour prices immediately.

"Caribbean mills in an effort to remain viable businesses and ensure the highest quality products and services must increase flour and flour related product prices immediately," the association said.

"We are cognisant of the effects this increase will cause on the consuming public and wish to assure all that increases will be kept to a minimum and any future decrease will be similarly passed on to consumers."


Source:
Abby Brathwaite
Trinidad Express
Wednesday June 8, 2011

http://www.trinidadexpress.com/business-magazine/NFM_loses__2_5m_in_first_quarter-123436404.html