Fast Moving Consumer Goods Firms (FMCGs)’s cost of production is expected to spiral up in the subsequent quarters on the back of the devastation by army-worms of the nation’s maize crop, which is a key input for many of these firms.
The calamitous event has pushed the price of maize to a one year high, according to farmers. These caterpillars can destroy the entire food crop.
This is sad news for consumer goods firms that had resorted to souring raw materials locally in order to reduce costs, create jobs and reduce the pressure on foreign exchange for such importation.
For instance Nestle Nigeria sources 82 per cent of its raw materials locally as the company continues to seek ways of reducing costs and bolstering margins.
“Industrial buyers (like Nestle Nigeria, Flour Mills of Nigeria, UAC of Nigeria, etc.) particularly require this crop in large quantities to be processed into different kinds of cereals, animal feeds, and other derivatives,” said CSL Research limited in a recent note.
“Among the hardest hit in our view will be the poultry farming businesses, which are also grappling with output losses from Avian Flu. We understand that maize makes up c.70% of items used for mixing poultry feeds,” said CSL.
Consumer goods firms in African’s most populous nation are struggling with rising cost of raw materials the devaluation of the currency, shortage of dollars and high energy costs.
Flour Mills Nigeria Plc, the largest miller by market said in its March 2017 audited financial statement that cost of sales otherwise known as input costs increased by 50.18 per cent to N457.77 billion, more than double May’s inflation figure of 16.25 per cent.
The Nigerian consumer goods firm’s net margins, a measure of efficiency, fell to 1.68 percent in the period under review.
For the first three months through March 2017, Nestle’s cost of sales spiked by 105 per cent to N37.66 billion while net margins fell to 13.65 per cent in the period under review from 18.64 per cent the previous year.
Livestock Feeds Plc, a subsidiary of giant UACN groaned under rising costs as cost of sales increased by 25.05 percent to N10.09 billion.
Parent company UACN plans to inject N750 million through a right issue in order to shore up the capital of its subsidiary.
For the first three months through March 2017, the cumulative cost of sales of 10 consumer goods firms under our coverage moved by 51.04 per cent to N285 billion.
According to NOVIS Agro, an agro commodity tracker, a metric ton of maize now sells for N183,130 in Lagos as against N100,000 per ton in June last year, before the armyworms outbreak in July.
This allows for an 83 per cent increase in maize prices. A total of 22 states out the 36 states have been affected the disastrous caterpillar fly.
The incessant attacks by herdsmen on farmers could also stoke food crises as farmers have cultivated less in recent months. This latest development could force manufacturers to rely more on import of raw materials such as Maize and Cassava hence exposing them to currency volatility.
Analysts say the continued increase in month on month price of food stuff, transportation fare, and utility bills could further erode the purchasing power of consumers.
This means manufacturers may suffer decline in sales and their ability to transfer costs to final consumer hampered because the consumer had already been squeezed by increased price of products.
BALA AUGIE
