With margins under pressure due to rising cost of commodities, logistic, foreign exchange and levies, the confectionery and bakery industry plans to increase prices going forward for its survival.
“The industry is faced with an uphill task in running businesses as we hit stumbling blocks every step of the way. At the rate that prices have risen in the past two months, the industry cannot absorb the costs any further without increasing prices,” several industry stakeholders told the Daily FT.
They claimed that there had been an upward increase in prices across the board, which could no longer be absorbed by the stakeholders, given the unexpected heavy medical and COVID-19 precautionary costs. “Looking ahead as we experience a higher inflationary environment, our first line of defence will continue to be holistic margin management of costs and revenue. For this, an increase in prices across the board is a must. We also have unexpected additional costs piling up on a daily basis with COVID-19 health guidelines and medical expenses, which also negatively reflects in manufacturing outputs,” they said.
As per the National Consumer Price Index (NCPI), the rate of inflation was 5.5% April as against 5.1% in March. Year-on-year inflation of the food group rose by 8.8% in March to 9.7% in April.
The confectionery industry is worth Rs. 150 billion; the formal local manufacturing industry is worth Rs. 85 billion and with the SMEs, the sector’s value is around Rs. 95 to Rs. 100 billion. Separately Sri Lanka exports $ 150-200 million (between Rs. 30 and Rs. 40 billion). There are around 1.5 million people engaged in the bakery industry, where 500,000 are directly employed and another one million engaged indirectly.
They said raw material, packaging material and logistic costs had skyrocketed during the past two months and the confectionery industry, in particular, was grappling with exports hampered due to non-availability of containers and ships.
Already in the local market wheat flour price has been increased by Rs. 6, sugar by Rs. 5 and import tax of fat to Rs. 650 and import tax of margarine to Rs. 615, whilst other key raw materials have shot up with global supply chain constraints.
In addition, they said with no control price imposed for permitted palm olein, it is sold at different prices for stakeholders with small and medium enterprises having to bear a higher cost in most instances.
They were concerned with the uncertainties and pointed out that it was hard to predict if the retail environment would be conducive to take sufficient pricing to cover input cost pressures and operational deleveraging. Despite the demand and orders in place for confectionery exports, the industry is faced with numerous logistic issues during the past three months.
“We cannot find 40-foot shipping containers and there are no ships coming for certain destinations as a result of the pandemic. Now with the extended lockdown internally, everyone is faced with difficulties in distribution,” they lamented.
Highlighting both internal and external challenges that both industry stakeholders had been grappling with since last year, they said a price increase was inevitable with no other option left for the survival of all employed and engaged.
“It is impossible to continue further with no profitability. Price hike in confectionery and bakery products will become inevitable in the future to safeguard the two industries,” they said.