Rising costs, weak demand hit Lesotho Flour Mills
LESOTHO Flour Mills (LFM) Managing Director, Ron Mills, says the firm is reeling from rising production costs, weak local demand and flour imports from South Africa which have resulted in bread-price increases, which customers can ill-afford.
LFM was established in 1979 and is owned by government and Seaboard Milling Company — a global agribusiness specialising in the production of grain and protein-based foods in Africa and South America.
The firm’s products include flour, maize meal, samp and sugar, and at its peak, LFM exported over 13 000 tonnes of flour to South Africa until the current slump, which has seen exports plummeting to 9000 tonnes for the past four months.
In an interview with the Lesotho Times this week, Mr Mills said a combination of factors had militated against the company, and threatening its viability.
Mr Mills added LFM’s woes began three years ago following an increase in the price of wheat, which made hiking the prices of its products inevitable.
This, he said, was compounded by the rising cost of fuel and raw materials, as well as the importation of competing products, which are normally being sold at a much cheaper price.
“South African millers are dumping flour into Lesotho, most of which is a copycat of our top brand Easy Bake used to make steam bread,” said Mr Mills.
“For the past two years, the flour market has been shrinking due to the very high cost of wheat.
“Currently, the price of wheat is around R3 900 per tonne whereas in 2012 the price was R2 800. In addition to that, we have also seen steep increases in the cost of electricity and packaging, as well as fuel, which have resulted in flour becoming an expensive proposition for the majority of consumers.”
He added consumers’ disposable income had failed to keep pace with the rising cost of the commodities resulting in lower sales.
“The main reason for the high prices, like I said, is the wheat price which has been hurt by the weak (South African) rand exchange rate particularly against the American dollar,” Mr Mills said.
“South Africa has to import from overseas, almost 50 percent of the wheat the country consumes each year as their farmers are only producing half of what they need.”
He also revealed flour exports to South Africa had also decreased due to price wars being waged by competing milling companies across the border.
Locally, Mr Mills said, the closure of some of LFM’s largest customers, such as Astoria Bakery and Golf Biscuit, had dealt a heavy blow to the company’s revenue base.
“Another issue impacting on our flour sales in the last couple of years has been the closure of some of our larger customers,” he said.
“Both Astoria Bakery and Golf Biscuit bakery closed in the past two years and there have not been any new customers to come in and replace them.”
Despite the challenges, Mr Mills said LFM was making efforts to revive the company’s fortunes.
Mr Mills added management had lobbied the Ministry of Trade and Industry, Cooperatives and Marketing to enact tariff protection policies for their products as well as enhancing the company’s marketing strategies.
“According to our competitors and main customers, the flour market has shrunk about 20 percent due to the high prices. To fight the South Africans, we are having to discount more on our products than we have normally done in recent years,” said Mr Mills.
“We have also been discussing the imposition of tariff protection on animal feeds with the Ministry of Trade and have made good progress in getting some help from them. The ministry has been receptive in our discussions and we hope to push further with the new government.
“We are also working on becoming HACCP (Hazard Analysis and Critical Control Point) certified, a food safety programme that ensures that all our products are safe for consumption.
“It is a very comprehensive programme which we expect to complete in October this year.”
Mr Mills also allayed fears of job-losses at the company, insisting management would ensure the workforce was retained throughout the on-going challenges.