By Nqobile Dludla
JOHANNESBURG (Reuters) -RCL Foods reported on Monday a 21.6% rise in half-year profit and said it planned more price increases to help ease pressure on margins at the South African food producer and in anticipation of soaring wheat prices due to Russia’s invasion of Ukraine.
Consumer goods companies worldwide are grappling with a surge in commodities, energy, transport and labour costs.
RCL is particularly exposed due to its reliance on maize, soya, sunflower oil, peanuts and wheat – where inflation is especially high.
Rising raw material costs and fuel pricing placed RCL’s baking and pies margins in the six months to December 2021 under pressure, with margins in groceries, sugar, baking and chicken all dropping.
“The cost pressures in the business are significant and, yes, we are planning to take additional price increases to the market only because we have to,” Chief Financial Officer Rob Field told Reuters.
The maker of Selati sugar, 5 Star super maize meal and Rainbow Chickens, raised prices in its bakery and grocery businesses in the first half of its 2022 financial year, while seeking efficiencies in the business, it said.
“If you take the average food inflation (of) anywhere from 5% to 8%, we’re in that kind of territory and even slightly more in terms of price increases that we’ve had to take to the market to be able to try and hold our margins,” Field said, adding that the further increases will also be in that average.
Biggest rival Tiger Brands also plans more price increases in the second quarter.
Also adding to rising commodity costs, especially wheat, is Russia’s military assault against Ukraine which has rattled grain markets, cutting off supplies from both nations. Together they account for nearly a third of world wheat exports and almost a fifth of global corn exports.[GRA/EU]
This is prompting grain exporters and importers to look for alternative sources of wheat and corn. RCL imports wheat from Ukraine.
“However we get our products eventually, it’s going to be priced at a very significant premium while this instability goes on,” Field told Reuters, adding RCL was considering import alternatives in Europe and South America.
CEO Paul Cruickshank told analysts that the impact of the war on the company is yet to be assessed and given the circumstances “we are quite short and have been short across all our commodities for quite an extended period of time.”
($1 = 15.3581 rand)
(Reporting by Nqobile Dludla; Editing by Kim Coghill and Bernadette Baum)
