Chairman: NFM loses $40m in flour division in 2021

National Flour Mills chairman Nigel Romano says the company is looking at a $40 million loss on its flour division, although the company overall will make a profit.

On the Now Morning Show on TTT on Monday, he said the cost of wheat had gone up by over 60 per cent, while shipping costs had increased over 110 per cent owing to supply chain disruptions.

“If we compare the cost of the grain stored in our silos, it’s 76 per cent higher than in July 2020 and 62 per cent higher than at the start of this year.

“The price increase in the cost of wheat and shipping cost mean that when we look to replace the inventory currently in our silos, there would be a 62 per cent increase – approximately $65 million, in the cost. My cost has gone up by $48 million from January to December.

“Given that impact and the increase in the main input, it’s become almost impossible not to have a price increase. The alternative would be to operate at a loss, but I don’t think that’s sustainable. The point is that we’re not going to pass on all of the increase to the consumer.

“This price increase we’re looking at will allow us to break even on flour and increase our profitability, because flour is not the only thing we sell. We have the feed, we have the dry mixes, that kind of thing. That’s why we’re able to not go the full hog because we’re not only producing flour. There are different divisions in NFM.”

Romano said he did not believe that just because a business was government owned means that it should operate at a loss.

“That makes no sense, as taxpayers are then forced to subsidise your loss-making. Also, NFM’s plant was commissioned in 2006 so it will be 16 years old this year. We have to not only maintain that plant but start putting aside so we can invest in upgrading the plant. The packaging machinery we use to pack the flour is over 40 years old, we need to be looking to invest in that.

“One way we’re looking at making up the shortfall and invest in these upgrades is to become more productive. In 2021. Our direct cost of labour in manufacturing dropped by nine per cent, our finance costs came down to eight per cent, and the administrative and selling costs are all coming down. So the challenge is to become a lot more efficient, again this is limited, but this is the first step to getting us to a stable foundation.”

Romano said there had not yet been any shortages, thus far, either in raw materials or the other products NFM carries.

“I had a conversation with the CEO yesterday because he was telling me that storing the grain is expensive, and I said it’s a risk we cannot take. Because given all the disruption in the supplies, our silos have been well stocked and there have been no shortages thankfully.

“We have had no shortages in any of the other products NFM carries. One of the big pushes we want to look at this year is the animal feed like our Perromax Anchorman dog food.

“We have to start working a lot more closely with our customers to improve that quality and show them that the quality of the feed we produce would match any brand. I don’t foresee an increase in any of those prices in the short term.”

On December 29, NFM said its flour wholesale price would be increased between 15-22 per cent and suggested a 19 per cent increase in the retail price as the company could no longer absorb soaring international wheat and shipping costs.