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Higher Costs Hit Food Businesses: Flour Mills, FMCG Firms Face Growing Financial Pressure

Vincent Amadi by Vincent Amadi
June 7, 2024
in Economy, News
Reading Time: 3 mins read
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Higher Costs Hit Food Businesses: Flour Mills, FMCG Firms Face Growing Financial Pressure
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The effect of naira devaluation, rising inflation, and interest rate hikes have proceeded to take a gigantic toll on the performance of firms beneath the fast-moving consumer goods (FMCG), causing their financial cost to soar.
Aside from the naira devaluation last year, there has been a sharp increment in the monetary policy rate (MPR) since the start of the year 2023. This has proceeded to erode the purchasing power of Nigerians, putting more pressure on the margins of FMCG companies and negatively affecting their bottom line.
Honey Flour Mills, another leading flour miller, detailed a 28 percent Year-on-year (YoY) growth in its income to N188 billion from N147 billion in the past year.


However, due to rising costs and soaring interest rates, which have influenced the cost of funds, the company incurred N36 billion in the net cost of funds for the working year, speaking to a jump of 160 percent YoY from N14 billion in 2023 and translating into a net loss after assess of N10.1 billion from a profit of N256 million.
Operators said the rising interest rate and devaluation are the two major elements that are affecting FMCG companies as a few of the companies had remote currency-denominated loans in their books. The loans increased in naira value on the back of the deterioration of naira. This has resulted in the loss of position for many firms in the sector, making it difficult for most of them to pay a profit.
Aside from the FMCG, six multinationals operating in Nigeria incurred combined losses of up to N540 billion final year indeed as they too have wide gaps in their operations to plug which may not empower them to pay profits until they fully recover from these losses.
From May 2022 to October 2023, MPR was raised by 725 basis focuses to 18.75 percent. This year, the interest rate was raised by 200 basis focuses from 22.75 percent in February to 24.75 percent in March 2024.
Last month, the Monetary Policy Committee of the Central Bank of Nigeria also increased the benchmark interest rate by 150 basis points from 24.75 percent to 26.25 percent.
President of New Dimension Shareholders Association of Nigerian, Patrick Ajudua, said the FMN recorded improved top-line performance of N2.3 trillion in spite of that the firm brought about N137.5 billion in remote exchange losses as against N31.5 billion endured in the past year because of naira depreciation which expanded its cost of servicing foreign loans.


“Most companies in the manufacturing sector suffered much from the impact of naira devaluation, inflation, high interest rate, and energy cost. This has resulted in a loss position and made it difficult for most of them to pay dividends,” he said. Head Value, Planet Capital, Paul Uzum said the last year has been very tough for firms in the consumer goods sector.
“Not only Flourmills but firms like Dangote Sugar, Honeywell, Nestle, NB, Guinness, Unilever, Cadbury, and PZ. They were all hit by two factors, one is the massive devaluation of the naira which made most of them record exchange losses,” he said.
According to him, the rising poverty, inflation, and unemployment are causing a fall in demand for most goods in Nigeria as consumers are currently focusing on the purchase of only fundamental goods and well as switching to cheaper choices where possible.
“For Flourmills, it is anticipated that this loss is a one-off event, and the company will return to its winning ways of consistent profit-making by another financial year.”
Head of Research, FSL Securities, Victor Chiazor, said the consumer food sector was significantly impacted by the FX policy, particularly those exposed to foreign loans or importing their raw materials.

Tags: business
Vincent Amadi

Vincent Amadi

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