-Jagdeo gives stern warning
Responding to serious concerns ignited by the recent increases in bread after hikes in the price for flour, the National Milling Company (NAMILCO) has strongly denied claims that it has been price gouging, saying it has made every attempt to cushion the effects of world market upheavals.
In a statement issued yesterday, NAMILCO also urged an examination of “the reasons for the recent attacks and veiled threats about reducing our ‘dominance’ in Guyana.”
Government was subsiding the cost of flour since May, when prices on the world market shot up. The subsidy ended on September 5 and afterwards there was an average increase of $1,500 on every bag of flour that led bakers to institute hikes.
President Bharrat Jagdeo, in an overseas interview with state-owned NCN aired last evening, said the government would address the situation sternly. “The mill has not kept its commitment,” he said of the decision to raise prices. “If they make their commitments they have to keep their commitments.” He said that the government would seek alternatives, despite a suggestion from NAMILCO that there would be reductions shortly.
Last week Trade and Industry Minister Manniram Prashad announced that government would move to make the domestic flour market more competitive to ensure that NAMILCO did not exploit consumers. He said the government has “serious concerns” over the company’s price increase on flour, which has led to automatic increases in the price of bread and biscuits. He added that if the world market price for wheat was examined, bakers should be purchasing flour below what they paid before the government subsidy was introduced earlier this year. As a result, he explained, government would have to take further measures to ensure that it is not being held to ransom.
NAMILCO explained that while Guyana has traditionally purchased commercial wheat from the US and Canada, both suppliers experienced difficulty in meeting demands in the second half of 2007 and the first half of 2008. At the same time, the world price of wheat began to escalate and prices took “an even faster ascent to stratospheric heights” by the first half of this year. Adding to the price woes was the fact that supplies of spring wheat became scarce and the US and Canada had difficulty offering sufficient quantities for all buyers. “The net result was that from early February to the middle of March this year, spring wheat was being offered far in excess of US$800 per metric ton,” NAMILCO explained, pointing out that in some instances the wheat could not even be sourced. While winter wheat was available, the price increased. To add insult to injury, the company said, costs for ocean freight also rose dramatically in 2007 and continued into 2008,” by almost US$50 for every metric ton.
The company calculated that in on March 1st its aggregate raw material cost would have easily been more than US$900 per metric ton. It was explained that if one is able to obtain about 77% of flour from wheat, the value of wheat in one ton of flour exceeded US$1,100 which does not even consider the operating costs or overhead costs. According to NAMILCO, prior to the price adjustments it was selling Thunderbolt flour in big bags for the equivalent of US$789 per metric ton or the equivalent of $7,300 per bag. “Therefore, the market was receiving a huge discount compared to the then present day value of the raw material,” NAMILCO said. To this end, it also provided a chart that showed current world retail price comparison of flour in US dollars that showed costs were lowest in Guyana.
NAMILCO said the quoted prices are plausible since it has to execute purchases of wheat months in advance of delivery and ocean freight takes several weeks while the discharge of the ships take another week. It was explained that ships have to be chartered and grain loading facilities must be scheduled to ensure that the ship is able to load at the required time without substantial waiting time. If any part of the schedule is disrupted, it added, huge costs are incurred to pay extra time for chartering the ship. Some of the wheat being milled in the middle of March 2008 was delivered during early November of 2007. NAMILCO said that was the reason why the cost of raw material, and subsequently the price of flour, was relatively low during the first quarter of 2008.
NAMILCO said that it was only in the last six weeks that the wheat purchased in February has been completely milled and it has reverted to milling spring wheat from the US and Canada as the predominant class of wheat in its leading Thunderbolt label. It said while spring wheat is still much more expensive than many other common wheat varieties, its quality is well appreciated in the local market. “Most bakers are therefore willing to pay a premium for this high quality of flour vis-à-vis flour from other blends of wheat,” the company explained. It was disclosed that the current shipment was received in the month of August when prices for spring wheat, before ocean freight is added were over US$500 per metric ton. The company feels that it is therefore easy to see that the current price for Thunderbolt Bakers Flour ex factory of only $7,000 is absolutely a bargain for the bakers.
And in addition to the wheat cost issues the company also has high electrical costs, which it said was the single largest cost item other than wheat and which was several times higher than in many countries. NAMILCO has been operating in Guyana for forty years and according to the company it has maintained the highest ethical standards as a citizen of the business community and of the country.