Rising costs afflict Natfoods
BUSINESS REPORTER
National Foods Limited (Natfoods), a publicly listed food processing giant, says the business is suffering from rising costs, primarily as a result of Treasury’s significant fiscal adjustments to Valued Added Tax (“VAT”) status of most basic commodities from “zero-rated” to “exempt”.
The development was confirmed by group company secretary Leigh Howes in a trading update for the quarter to March 31 2024.
She noted that stockfeeds, flour, salt, and maize meal—all of which are major products for Natfoods—were affected by the legislative change.
“The quarter began with a number of major fiscal policy changes being implemented by the authorities.
“This saw the VAT status of most basic commodities being changed from “zero-rated” to“exempt”. The effect of these changes is that whilst output VAT is not charged on selling the product,the input VAT incurred in the production of these goods can no longer be claimed and has therefore become a business cost.
The financial impact of this has been to increase costs within the business by around 3%; this is significant, especially given the typically low operating margins of commodity businesses,” Howes said.
She continued: “In addition to the above, the VAT status of rice was changed from“exempt” to “standard-rated”, increasing its cost by 15% to the consumer.
“This was an unfortunate policy change as rice is a key basic food item for many consumers. The above measures impacted volume momentum in some categories, notably flour and rice during the quarter under review.”
Howes is optimistic that the business will continue to provide the market with sufficient products this year in spite of these obstacles.
Natfoods’ volumes for the quarter under review, at 145,000 tons, were 5% higher than the previous year. The company’s sales for the quarter, at US$89 million, were unchanged from the previous year, with strong performances in maize and snacks compensating the losses in flour and rice.
“On a year-to-date basis, volumes at 430,000 tons were 3.9% above the comparative period. Revenue for the nine -month period amounted to US$261m, 2.2% ahead of the same period last year,” Howes said.
She said momentum in the stockfeed category slowed following the imposition of VAT on meat products.
Maize volumes were firm, following last year’s poor harvest and downpacked volumes were impacted by the imposition of VAT on rice as well as the continued high global raw material prices with India’s export ban remaining in place.
Snacks and CCB (Cereal) volumes showed encouraging momentum as the capacity enhancements were commissioned.
The changes made to the VAT status of many of the operations products during the quarter will make it increasingly challenging for the formal sector to compete against the informal sector, and grey imports.
Natfoods remained hopeful that the authorities will deploy some policy consistency in the period ahead to enable local players in the formal sector producing basic commodities to focus on supplying the consumer consistently, in what will be a challenging period ahead.
The group’s focus will be to ensure adequate stocks of competitively priced, basic goods, for the consumer across the country over the next 12 months.
