Flour shortage hits confectionaries on FX scarcity

Major confectionary outlets in Lagos are hard hit by shortage of pastries, including meat-pie and bread, which is caused by scarcity of all-purpose baking flour.

The scarcity is attributed to millers’ inability to access sufficient foreign exchange (FX) to import wheat flour, which is a major input for the production of confectionaries.

A visit to key outlets in the state shows queues at the confectionary stands of major retailers are becoming longer and in most cases stocks are exhausted before mid-day.

“We have run out of flour,” a baker at the biggest retail outlet in Apapa told BusinessDay. “And those who supply us have not been able to do so. We had to go out to source for flour at higher rates to meet the demand of our customers,” the baker said.

Small-scale confectioners have also been affected as the FX shortage becomes scarcer on the back of low oil revenue inflows into Africa’s most populous nation. The result has been a hike in prices of flour as well as some other baking ingredients.

A small-scale baker in Lagos says about 7 kg of flour in litres which used to sell for N500 is currently sold at prices between N700 and N750.

Another reported that although the product was still available, its price had increased from what she used to buy in the past.

Joseph Babatunde Oke, chairman, A.G Leventis, producer of bread, cakes and sausages, told BusinessDay that the company struggles to get FX to order for raw materials.

Oke, who said the company still relies on flour from local millers, stressed that FX must be made available to manufacturers if they are to become relevant in the diversification song.

“Let me give you an instance, we run a bakery and we sell one of the best breads in the market. At a time we were selling over 1.5 million loaves of family-sized bread every month.  But we discovered that the flour millers are increasing their prices every day. Current we sell about 400, 000 loaves,” said Oke, in an exclusive interview, after A.G Leventis’ annual general meeting in Lagos.

Flour Mills of Nigeria, the country’s biggest miller, said manufacturers have faced FX challenge, among other constraints that have provided a ‘perfect storm’ and blinded several enterprises.

“Due to the acute shortage and scarcity of forex supply at this rate, industry had to resort to the secondary window to source their needs pushing up cost of production,” said John Coumantaros, chairman of Flour Mills of Nigeria Group, after the 2016 annual general held in Lagos.

Plans are underway to send an executive bill to encourage 15 percent cassava flour inclusion in bread making to encourage key players along the cassava value chain.

Audu Ogbeh, minister of agriculture and rural development, said recently that the plan would curtail slightly above $5 million daily spending on wheat importation, a key raw material for the bread industry, while encouraging players in the cassava value chain to provide the raw material for value addition.

Nigeria has made mistakes in the last 30 years for ignoring agriculture, he said, adding that every industry in the agricultural sector that has the potential for foreign exchange would be developed.

In recent times, general concerns over the rising prices of commodities in the country following the plunge of the nation’s economy into a recession have continued to mount.

Wheat has become one of the common cereals in Nigeria, competing with staples such as maize, millet, plantain and cassava. In addition, the increasing number of fast-food restaurants in major towns has continued to increase the demand for flour.

The CBN recently directed banks to allocate 60 percent of FX to manufacturers. But manufacturers say what they get is still infinitesimal.

“There is no FX at the moment. Even with the 60 percent, how much does a manufacturer get? For instance, if the CBN gives out $1 million, manufacturers get 60 percent, which is $600,000. This is not even enough for one manufacturer. What we got in August was just 2 percent of our needs,” said Oke.

Reports earlier this year on cargo influx at port terminals in Apapa indicated that cargo dropped by 50 percent as most importers were unable to source for foreign exchange to procure raw materials for production.

In August, the Lagos State Association of Master Bakers and Caterers announced the increase in the price of bread by 20 percent with strong complaints about hike in raw materials including flour and sugar.

However, in spite of the increase, major confectionaries may not be able to meet up with demands if they are unable to source for flour even at increased prices.

Wheat flour is not in CBN‘s List of 41 items prohibited from the FX market. The price of family-sized bread has risen from N200 to N 300 in the last four months.

“You cannot blame millers or end users. The macroeconomic environment supports price increases. But it’s gradually out-pricing the common man,” said Ike Ibeabuchi,CEO, MD Services Limited, producer of chemicals.

The scarcity of dollars in the country began last year 2015, fuelled by falling oil prices. Nigeria relies on oil for 75 percent of its revenue and 90 percent of its FX.