NAMIB MILLS EXPLAINS PRICE ADJUSTMENTS

By By Francis Mukuzunga
October 2010
Business
DESPITE the recent announcement of an increase in the price of its wheat flour, Namib Mills says it still has the country’s food sufficiency needs at heart although it is facing stiff challenges from international markets where it sources wheat, the main ingredient for baking bread and other products.

A number of people had braced themselves for a major price increase of bread and related wheat products when Namib Mills announced in August that the price of wheat flour would increase in October, owing to a number of factors, among them, issues of supply and demand in the major markets from where the product is being imported.

Namib Mills’ Managing Director, Koos Ferreira says the increase was necessitated by an escalation in operational costs as well as acquiring the wheat from Europe and the Americas.

“The envisaged price increase of roughly 10% announced in August 2010 came into effect on 04 October 2010, with a final increase of 13.5%. This final percentage increase took into account additional operational costs, such as increases in packaging material costs (9%), wages (7.5%), electricity (17%) and obviously the raw material price increase. The raw material (wheat) costs did not drop as much as anticipated at the time (August). The world price of wheat had increased by 26% at that stage, and we projected a flour price increase of 10%, based on our assumption of an overreaction, and the pendulum to swing back to more realistic price levels,” Namib Mills said.

According to Ferreira, since the last increase of wheat flour in Namibia was in August 2008, upon calculation, the flour is still cheaper than it was in August 2008.

At the same time, the country’s largest milling company had to ensure that maize meal, mahangu and other staple foods are within reach for many – something that called for a reduction in price.

Namib Mills also announced that the price of rice and maize meal would decrease towards the end of October and November respectively. The company says this is in line with favourable international market practices that are currently prevailing as well as the company’s philosophy of cushioning the consumers against the inflationary trends.

“The price of rice will decrease with 6.5% effective 18 October 2010. This is due to the international price of rice, and the current exchange rate of the Namibian dollar against the US dollar. The price of maize meal will decrease approximately 7-9%, effective 22 November 2010. This decrease is a result of cheaper raw material prices, due to the borders opening, allowing for importing of maize from South Africa,” thus Ferreira.

According to Ferreira, roughly 50% of all maize is produced in Namibia mainly in the “maize triangle” of Grootfontein, Tsumeb and Otavi, while the rest is imported from South Africa.

The maize and wheat products produced by the company are fortified through enriching them with the necessary vitamins – something that Namib Mills does voluntarily. For a company that has been operating in the country since 1982, Namibia Mills has to take care of the people’s dietary needs while at the same time keeping its profit margins at reasonable levels.

Namib Mills has now grown to become a world class food manufacturer, that is ISO accredited, and primarily milling maize, wheat and mahangu and also packaging rice and sugar as part of its product line, as well as manufacturing Pasta.

Ferreira says such gestures have kept the company abreast as Namibia’s best milling company with good product ranges and employing well over 700 people at the various depots around the country as well as at the main factory in Windhoek.

Arguably, the company’s best selling products are Top Score maize meal and the Pasta Polana range of pasta products. In addition to Pasta, Namib Mills also packs sugar (white and brown), and distributes rice under different labels and packages.

Other maize meal packages include the No. 1, Ten and Namib Sun range. Pasta Polana comes in different shapes and sizes and is easy to prepare and can be quite filling while the other brand is Pasta la Vita King.

Only 15% of wheat is produced in Namibia mainly from the Hardap irrigation scheme and some from a few Green Scheme projects in the north. However, the majority of wheat comes from Germany, France, Canada and Argentina. All rice is imported from the East Asian countries.

“Over the years, Namib Mills has kept abreast with changing consumer needs and these changes have led to huge investments into a state of the art pasta manufacturing plant, which not only created jobs for Namibians but has created and increased the number of local pasta consumers” the company says.

Infrastructural growth started in 1995 when the company purchased a milling plant from Bühler (Switzerland) and installed a Pasta plant from Pavan, (Italy) in Windhoek in 2000.

The maize plant, bought from Agra in August 1996, was ideally set up in Otavi as it offered close proximity to the farming belt in that area known as the “Maize Triangle” and was strategically placed as part of the “Northern Route”.

A commercial mahangu milling plant was also installed at Otavi in 2002, and in 2009 a new sugar packing facility was installed at the Windhoek factory. More land was purchased from Agra in 2009 for another sugar plant at Otavi to cater for the huge wet brown sugar market in northern Namibia.

“Namib Mills is supplying over 250 bakeries around the country with complete mix and the product seems to be very popular,” says Ferreira.

“On a commercial side, we are the biggest maize, mahangu and wheat millers in Namibia. Over the past three to four years mahangu production was low because of climatic conditions (floods and droughts) and 30 to 40 000 tonnes was kept back in subsistence farmers’ households, therefore we had to import Mahangu from India. This year the estimate is about 73 700 tonnes of mahangu from local production.”

Maize, wheat and mahangu are controlled products administered by the Agronomic Board and Namib Mills says local farmers are protected through issuing of permits during the “open border period” but only after millers have bought the local crop.

The “closed border period” for maize is usually imposed between May and September each year. During this period, all local maize, and Mahangu have to be utilised first before any other imported stuff. However, because of constant shortages, Namib Mills often finds itself importing maize from South Africa and wheat from other countries.

In terms of wheat, 15% of the stock is supplied by local farmers from the Hardap and parts of the northern regions. Because of Namibia’s climatic conditions, wheat have to be imported from Germany, France, Canada and Argentina but all the milling is done locally.

“The world market price dictates the price of the commodity locally. We always try to price our products responsibly. If the price of imported wheat goes up then products such as flour and eventually bread, can go up,” concludes Ferreira adding that one of the measures that Namib Mills instils to keep prices low is to hedge against pricing through forward buying. PF