SA’s largest food producer, Tiger Brands, has warned of rampant inflation until at least the end of the year, with CEO Noel Doyle this week saying he had not seen such a breadth of price hikes in his decades-long career.
Speaking after Tiger Brands’ results for the six months ended March 31 2022, Doyle said he had not seen widespread inflation “on this scale” in his over 20 years working of the Tiger Brands group and he warned it could get worse. He is expecting double digit increases in soft commodities in the second half of the year — with a peak in pricing only at the end of 2022.
“I think it will be low teens across most of the portfolio, but in the grains business — probably with the exception of rice — it’s going to be in the upper teens, somewhere north of 15% and up to 20% increases.”
The company said price increases of some of their products would likely run into “double digits”.
Tiger Brands makes products such as Albany Bread, Jungle Oats, Koo canned foods and All Gold tomato sauce.
Doyle said while there were periodic spikes in one commodity or another, be it maize or wheat or even plastics and packaging because of oil price increases, he had never seen this “breadth of price increases” before.
I think it will be low teens across most of the portfolio, but in the grains business — probably with the exception of rice — it’s going to be in the upper teens, somewhere north of 15% and up to 20% increases
— CEO Noel Doyle
With the exception of rice, whose price had come down with good crops, Doyle could not think of a single soft commodity that had not undergone significant inflation since the beginning of the year.
And while rice may be cheaper, the costs of bringing the product in from Southeast Asia are three times costlier than they were last year, spurred on by soaring oil prices, he said.
Most of the inflationary pressure is due to the Russia-Ukraine war, since 30% of wheat is imported from Russia or Ukraine, while 45% of the raw materials for edible oils such as rapeseed and sunflower also come from the two countries.
“We’ve been fortunate that we’ve been able to shield the consumer from that because we had built up some positions, but as they run down and we start to buy at replacement cost, there is a bit of a shock that will go through to the market,” said Doyle.
Tin cans — of which Tiger Brands uses about 350-million a year — are also becoming more expensive thanks to a rise in the price of the base metals used to make them, as well as hikes in shipping costs to get the product to SA.
As far as staples such as bread were concerned, Doyle said while the business would not “consciously run anything at a loss” and would attempt to try to recover cost increases, this would not result in a “massive recovery” of these costs in the second half.
Instead, they would try to “squeeze some efficiencies” through mechanisms such as changing formulations or putting together-better value offerings.
Adding to the “perfect storm” facing SA, Doyle said, were supply logjams in global logistics that began when countries introduced hard lockdowns in response to the pandemic as well as local bottlenecks caused by the recent floods in KwaZulu-Natal.
Locally, shortages of sugar began when production in KwaZulu-Natal was hit by the riots in July 2021 and the subsequent floods.
“If you have a ship full of wheat — 35,000 to 40,000 tonnes — and it’s sitting at anchor off Durban harbour, that’s probably costing you an additional R750,000 a day. All of these things start to build up in the supply chain.”
Doyle said indications were that the industry across the board and not just Tiger Brands would be implementing price increases. This will result in wider acceptance of increases and help support “positive momentum” in the second half to improve operating profit levels.
“You get pushback from the customers but the price increases are ultimately being accepted,” he said.
Other food producers are facing the same issues.
RFG Foods CEO Pieter Hanekom said: “We were hoping that costs would have stabilised and we'd get a bit of relief but we are not seeing that. There will be continuous pressure on margins. So we foresee price increases of 5%-10% to recover the cost.”
The company, which produces tinned fruit and jams under the Rhodes brand and canned Bull Brand meat, has already increased prices to retailers but these have not been high enough, and further increases would affect most products.
The sharpest cost increases have been for cans, meat, oils and international freight, Hanekom said.
We were hoping that costs would have stabilised and we'd get a bit of relief but we are not seeing that. There will be continuous pressure on margins
— RFG Foods CEO Pieter Hanekom
Pricing for canned goods was “under pressure” as there had been an increase of 20%-30% because of the rising price of tinplate, which is imported.
Hanekom said price increase conversations are “difficult” and retailers “are pushing back”.
“If you go to any of the retailers, the foyer is full of people looking for price increases. It’s going to be difficult (to reach) an understanding ... All of us are worried about the effect on consumers. (But) we need to get increases.”
However, there are signs that some commodity prices have peaked, which may ease pressure on consumers.
Erik Smuts, CEO of Nampak, Africa’s largest packaging group, said the price of aluminium, which historically used to trade at about $1,800 a ton and has more than doubled in the past 18 months, appears to have peaked at the end of March after trading as high as $4,000 at one point.
The gradual decline in the price and the benefits should be passed on to Nampak’s customers in the coming months and, ultimately, the consumer.
Smuts acknowledged food producers were wrestling with significant costs, among them packaging, and that it was more difficult for brand owners to pass on their costs than commodity producers such as Nampak.
While discussions about price increases were “not pleasant”, he said Nampak had no alternative.
“If we don’t pass through costs, we don’t have the margins to absorb it at all. We would become unprofitable immediately with no guarantee of recovering the costs later. At the same time, when the costs do come down, we pass through the benefit and that of course is generally a very pleasant discussion.”
Consumers, at the tail end of price increases, will have to fork out for essential foods.
Sasfin Securities chief global equities strategist David Shapiro said richer countries such as the US and parts of Europe would be able to absorb inflationary pressure better than SA, where food and petrol consumption forms a “far bigger part of our wallet”.
TimesLIVE reported on Thursday that fuel is expected to increase by between R1.93/l and R1.97/l in June. However, with the fuel levy reprieve of R1.50/l coming to an end in May, the increase could be as high as R3.50/l, unless the government extends the temporary relief.
This along with other cost pressures could see inflation accelerate further.
This week producer inflation surged to a record high in April, with prices of final manufactured goods rising by 13.1%, from 11.9% in March, according to data from Stats SA.
That’s the highest rate since the start of 2013. The increase was driven by soaring costs of fuel, coal, food, beverages and tobacco, Bloomberg reported.
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