Nigeria: Price of bread rises faster than inflation
There are indications that prices of bread and other flour based food items would continue to rise as bakers and flour millers said there is no end in sight for solutions to the key drivers of the cost in the sector.
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Meanwhile the operators told Financial Vanguard that they would continue to pass the costs to final consumers as the market condition dictates.
But Financial Vanguard findings show that leading companies in the sector are recording faster rise in revenue and profit than the rise in their cost of production, apparently indicating they may be passing more than actual cost of production to the consumers.
The three biggest and most dominant companies in the sector recorded combined 45 percent increase in cost of production to N2.2 trillion in the full year 2023 from N1.5 trillion in 2022.
But their combined turnover at N2.5 trillion in the period under review, represents an 47.2% increase from N1.7 trillion in the previous period.
At the backdrop of what the operators see as entrenched cost drivers in the sector they said the price of flour which also drives the price of bread in Nigeria is still rising due to dependence on imported wheat.
According to them Nigeria produces less than 1% of its wheat needs, indicating the local supply quantity is actually decreasing despite the two decades of operating backward integration to building local production capacity.
They said while local output has declined from about 10 percent peak local consumption has increased by more than 40 percent in the past one decade.
They believe this trend is not going to change soon adding that more challenges have now come into the basket of troubles in the industry.
Listing the additional challenges, the industry operators included high exchange rate and scarcity of foreign exchange, rising cost of transportation due to rising prices of petrol and diesel as well as cost of energy in running the factories.
They also added insecurity and instability in wheat producing regions, inadequate storage facilities and poor infrastructure.
Bread prices rise over 76%
Financial Vanguard findings from retail dealers indicate that consumer prices for bread is now higher than inflation rate.
The retail price for premium category as at last week was put at market average of N2,500 for large sizes, about 51.5 percent year-on-year, YoY, increase as against inflation rate of 32.15 percent.
The price increase is even much faster in the low income category where average price is now N1,500 for large sizes, up by 76.5 percent YoY, from N850 a year ago.
Bread vendors in some parts of Lagos who spoke with Financial Vanguard, lamented that even before the recent petrol price increases prices of bread have been going up.
They noted that they have experienced a drop in patronage and that they have also reduced their demands from bakeries.
Operators give insight
Reacting to the challenges facing the flour milling and bread industries, Comrade Mike Olanrewaju, General Secretary National Union of Food Beverage & Tobacco Employees, NUFBTE, said: “The price of flour in Nigeria is still rising due to dependence on imported wheat. Presently Nigeria produces less than 1% of its wheat needs. Transportation and logistics issues; foreign exchange supply and rising exchange rate; inefficient supply chain management issues; insecurity and instability in wheat producing regions; inadequate storage facilities and poor infrastructure have combined to pressure costs in the industry.”
He added, “Competition from imported flour and smuggled products, policy inconsistencies; technical and technological limitations are part of the problems facing the industry.”
Commenting on backward integration adopted by some companies to deal with the challenges of foreign exchange and imported inputs, he said: “Some Nigerian flour milling companies have adopted backward integration strategies, but challenges persist due to limited local Wheat production and quality issues; high cost of local wheat compared to imported one are the obstacles that have made the program fail in the industry.
Bakers’ comments
Responding to Financial Vanguard enquiries regarding the continued increase in prices of bread President of Premium Bread makers Association of Nigeria (PBAN), Engr. Emmanuel Onuorah, said: “To be very honest, businesses in Nigeria are facing various forms of challenges. All I can say is that the incessant increase in price of flour, which makes up about 60% of our cost is not good for the bakery industry in Nigeria.
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“The challenges facing bakers are so numerous; price of our ingredients like flour, sugar, calcium Propionate (preservative), margarine, yeast, bread softener, ascorbic acid etc keeps increasing at alarming rate.
Multiple taxation by Federal, States and Local governments is stifling and almost crippling the bread making business.”
He decried the floating of forex, which he said contributed largely to the increase in the cost of clearing of their ingredients.
He stated: “If the current trend of escalation in price of ingredients continues, coupled with fuel price hikes, we shall have no alternative than to continue passing on the cost to consumers for us to remain in business.”
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He called on the Federal Government to utilize the 15% wheat development levy collected from millers to carry out research on the improved seedling for high yield and disease resistant wheat cultivation; support the bakery industry to avoid its going extinct.
He added, “Interest rates by banks is hovering between 30% – 34%, this foes not encourage borrowing for working capital to keep our businesses afloat. The government should grant us single digit loans and grants.”
Flour Mills’ results
Driven by sustained demand across all the Company’s business segments, Flour Mills of Nigeria, FMN, the industry leader, operating revenue grew to N2.3 trillion for the financial year ended March 31, 2024, up 49% from N1.5 trillion the previous year.
Gross profit increased by 54% to N272 billion, apparently reflecting effective pricing and cost optimization measures leading to 61% growth in operating profit to N208 billion.
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Commenting, Boye Olusanya, MD/CEO, FMN, said: “Despite the challenging economic environment, we have solidified our position as a market leader in the Food and Agro-allied sector, driven by innovative product offerings and efficient operations.”
Source: Vanguard