Bread Price and other flour-based food items are expected to continue rising, with bakers and flour millers warning that there is no immediate solution to the key cost drivers affecting the sector. Industry operators informed Financial Vanguard that they will keep passing these increased costs onto consumers as dictated by market conditions.

    However, Niajaecho business news findings reveal that leading companies in the sector are experiencing revenue and profit growth at a faster rate than the rise in their production costs, suggesting they may be passing more than just the actual cost increase onto consumers.

    The three largest companies in the sector reported a combined 45% rise in production costs, increasing to N2.2 trillion in 2023, compared to N1.5 trillion in 2022. Meanwhile, their combined turnover rose by 47.2%, reaching N2.5 trillion in 2023, up from N1.7 trillion in the previous year.

    Amid these entrenched cost drivers, operators have noted that the price of flour, a key factor influencing bread prices in Nigeria, continues to rise due to the country’s reliance on imported wheat.

    Bread Price

    Bread price

    According to industry operators, Nigeria produces less than 1% of its wheat needs, highlighting a decline in local supply despite over two decades of efforts to boost domestic production through backward integration. While local wheat output has dropped from its peak of around 10%, consumption has surged by more than 40% in the last decade.

    Operators believe this trend will not reverse anytime soon, noting that additional challenges have emerged in the industry. These include high exchange rates and foreign exchange scarcity, rising transportation costs driven by increasing petrol and diesel prices, and soaring energy costs for running factories. They also cited issues like insecurity and instability in wheat-producing regions, inadequate storage facilities, and poor infrastructure.

    Naijaecho findings indicate that bread prices have now risen faster than inflation. The retail price for premium bread was an average of N2,500 for large loaves last week, reflecting a 51.5% year-on-year increase compared to the 32.15% inflation rate.

    In the low-income segment, the price hike has been even sharper. Large loaves in this category now sell for an average of N1,500, marking a 76.5% year-on-year increase from N850 a year ago.

    Bread vendors in parts of Lagos expressed frustration, noting that bread prices had been rising even before the recent petrol price hikes. They reported a decline in customer demand and said they have also reduced the volume of their orders from bakeries due to the price surge.

    Operators Provide Insights

    Commenting on the challenges facing the flour milling and bread industries, Comrade Mike Olanrewaju, General Secretary of the National Union of Food Beverage & Tobacco Employees (NUFBTE), explained, “The price of flour in Nigeria continues to rise due to the country’s dependence on imported wheat. Currently, Nigeria produces less than 1% of its wheat needs. Factors such as transportation and logistics issues, foreign exchange shortages, rising exchange rates, inefficient supply chain management, insecurity in wheat-producing regions, poor storage facilities, and inadequate infrastructure are all driving up costs in the sector.”

    He further added, “The industry also faces competition from imported and smuggled flour, along with policy inconsistencies and technological limitations.”

    On the topic of backward integration, where companies attempt to reduce reliance on imported inputs, Olanrewaju stated, “While some Nigerian flour milling companies have adopted this strategy, significant challenges remain. Local wheat production is limited, and the high cost and lower quality of locally produced wheat compared to imported wheat have hindered the success of this approach.”

    Bakers Respond

    Engr. Emmanuel Onuorah, President of the Premium Bread Makers Association of Nigeria (PBAN), shared his thoughts on the persistent rise in bread prices: “To be frank, businesses in Nigeria are grappling with numerous challenges. The continuous increase in flour prices, which accounts for around 60% of our production costs, is detrimental to the bakery industry in Nigeria.”

    He highlighted the struggles bakers face, saying, “The cost of essential ingredients like flour, sugar, calcium propionate (a preservative), margarine, yeast, bread softener, and ascorbic acid is rising at an alarming rate. In addition, multiple taxes imposed by federal, state, and local governments are stifling the bread-making business.”

    Onuorah also blamed the fluctuation in foreign exchange rates, which has significantly increased the cost of importing their ingredients. “If the rising trend in ingredient prices continues, coupled with fuel price hikes, we will have no choice but to pass these costs on to consumers in order to stay afloat,” he remarked.

    He urged the Federal Government to use the 15% wheat development levy collected from millers to fund research into better wheat seedlings for higher yield and disease resistance, as well as to provide support for the bakery industry to prevent its collapse.

    On the financial pressures facing bakers, he added, “With interest rates from banks ranging between 30% and 34%, it is nearly impossible to borrow working capital. The government should consider providing single-digit loans and grants to support us.”

    Flour Mills’ Performance

    Despite the challenges, Flour Mills of Nigeria (FMN), the industry leader, reported strong financial results. For the fiscal year ending March 31, 2024, FMN’s revenue grew by 49% to N2.3 trillion, up from N1.5 trillion in the previous year. Gross profit surged by 54% to N272 billion, a result of effective pricing strategies and cost optimization measures, leading to a 61% increase in operating profit, which reached N208 billion.

    Boye Olusanya, MD/CEO of FMN, commented, “In spite of the tough economic conditions, we have reinforced our position as a market leader in the food and agro-allied sector, driven by innovative products and efficient operations.

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