KARACHI: Food manufacturers plan to pass the increased costs on to consumers to maintain margins, which would translate into a 10% price increase in FY22.
AKD Securities Ltd hosted a Pakistan Listed Food Manufacturing Conference attended by leading local food manufacturers.
Companies attending the event said they need to pass the costs on to consumers to maintain margins in the long run. In the past, local food manufacturers have raised their prices based on food inflation and plan to increase their prices by 8-10% in FY 22 due to rising costs.
The companies reported that unregistered local businesses and their manufacture of unregulated products were hampering the sales of registered businesses. These products are in high demand due to the rising prices of regulated products manufactured by registered companies.
Additionally, companies attending the conference blamed the country’s relaxed legal system for several counterfeit products, which remain a constant challenge.
The State Bank of Pakistan noted in a report that a number of new entrants to the processed food industry were in the informal sector, which is largely undocumented and under-taxed. The food products produced by these companies are cheaper also due to the low quality and; therefore, pose a major challenge to large formal sector companies investing heavily in innovation to make their product differ significantly from those currently on the market and on aggressive media campaigns to convince potential customers to buy their products. products.
The whole process of product development and marketing is capital intensive. However, inadequate patent and trademark protection allows small manufacturers to easily copy the label and packaging of branded products.
These counterfeit products generally offer high margins to retailers, especially in small village shops. Thus, making investments in R&D in the presence of free riders becomes quite difficult.
While large players are better placed to integrate all stages of the production process, i.e. from primary production to retail, smaller players focus more on improving the efficiency of production. their supply chain through better coordination.
In this context, adopting minimum quality standards at every stage of the process contributes to better integration of the supply chain, observes the SBP report, adding that the implementation of food safety and quality standards globally recognized also opens the export market in developed countries.
The higher demand and rising cost of agriculture due to the removal of subsidies on energy and agricultural inputs as well as some supply constraints have maintained food inflation and continue to do so.
With the depreciation of the rupee against the dollar, food inflation in the country is on the rise. A report from the Pakistan Bureau of Statistics (SBP) noted that the national consumer price indicator (CPI) of food items for September rose to 158.85 percent from 152.71 percent in August, showing a 4.02 percent growth,
Non-perishable and perishable foodstuffs amounted to 4.13% and 3.35% respectively. The price of chicken is 42.04 percent; onions, 32.49 percent; masoor pulse, 15.70 percent; eggs, 14.43 percent; and wheat flour 9.69 percent.
Food inflation has increased in the country as it experienced a huge trade deficit of $ 3.954 billion in 2020/21 between July 2020 and June 2021, compared to just $ 817 million in 2019/20 and $ 1.061 billion in 2018/19, respectively, forcing the government to cut subsidies on various commodities and further ban the exports of others, a report from the Pakistan Bureau of Statistics (PBS) revealed.
In FY21, Pakistan’s food basket exports stood at $ 4.393 billion compared to $ 4.361 billion last year, indicating growth of 0.74 percent. Of these, more than $ 2 billion came from rice exports, while the rest came from other food products.
In August, the government decided to ban the export of perishable foods such as tomatoes and onions for three months in order to curb food inflation and ensure the availability of these foods at an affordable price for consumers.
In July-August of this fiscal year, Pakistan’s deficit skyrocketed to around $ 7.5 billion due to a huge amount of imports.
Pakistan imported 57,000 tonnes of wheat in the first two months of the current fiscal year compared to 39,348 tonnes imported last year, an increase of 44.86 percent.
In the nine months of last year, the government imported 3.612 million tonnes of wheat worth $ 983.326 million.
Rising food and oil prices around the world due to the Covid-19 pandemic have affected the prices of essential food items around the world. Continued increase in international food prices affects domestic prices as Pakistan is a net importer of staple foods, wheat, sugar, edible oil and pulses.
In addition to exports, sugar, wheat, wheat flour and products without preservatives are also smuggled into Afghanistan.