Nigerians may soon pay more for bread as poor purchasing power has dampened the margins of millers, forcing a hike in flour prices by 5 percent.
The new price hike has already taken effect, a BusinessDay survey of key markets across Lagos, Nigeria’s commercial capital, shows. A 50kg bag of flour that was sold for N10,700 two weeks ago now sells for an average N11,200.
Master Bakers Association says this may force bakers to increase the prices of bread or cut down the sizes of the dough when they hold a meeting today to deliberate on the issue.
“The cost of production is weighing on us and there is low consumer demand. Flour millers are absorbing a lot of cost because we are conscious of the Nigeria that we live in today and the buying power,” said Lanre Jaiyeola, vice president, Flour Milling Association of Nigeria.
“There are issues of wheat prices which account for most of our production cost, cost of interest rate and exchange rate as well as low purchasing power and all of these dynamics affect the eventual production,” Jaiyeola said.
“Flour millers need to survive and by surviving we need to be profitable substantially. This has made us increase the price of a bag of flour by N500,” he added.
The evidence of the above shows in the financial statements of listed flour millers in the country.
For the year ended December 2018, Dangote Flour Mills posted a loss of N1.15 billion, from a profit of N15.13 billion the previous year. This shows a 92 percent decline in profit.
Similarly, revenue dipped by 10 percent from N124.7 billion in 2017 to N112.3 billion in 2018. Cost of sales increased from N95 billion to N102 billion in the same period.
Although other millers are yet to release their full year 2018 financial statements, the nine-month financial statement also shows similar trends.
Flour Mills, Nigeria’s biggest miller by market size, saw its profit decline to N7.9 billion in the nine months ended September 2018, from N13.2 billion in the corresponding period of 2017.
The company’s revenue also decreased by 6 percent to N400.6 billion, from N427.5 billion a year earlier, while cost of sales increased by 5 percent.
Similarly, Honeywell, Nigeria’s fifth miller, posted a decline in profit by 95 percent to N143 million in the nine months ended September 2018, from N2.8 billion in the year-earlier period.
Revenue increased to N55 billion from N54 billion, while cost of sales also grew from N42 billion to N45 billion in the period under review.
“Nigeria purchasing power is declining and this is because of our economic realities. For the millers to increase prices of flour at this time, it shows they can no longer manage the situation,” said a research analyst who does not want his name mentioned.
“Wheat, the key input in producing flour, is mainly imported and evacuating goods from the ports has been very difficult for a period of time now and this is also affecting their production. There is a limit to which the millers can control their cost, so they have no choice than to increase prices,” the analyst said.
Jude Okafor, national publicity secretary, Association of Master Bakers and Caterers of Nigeria, said bakers are currently managing to survive and the price increase will further compound their woes.
“It has been difficult for us as prices of inputs keep increasing and Nigerians are not consuming bread like before because of the economic situation. The outcome of our today’s meeting will determine how we will handle the issue,” Okafor said.
Josephine Okojie
