Food companies brace for inflation

AFTER posting unprecedented growth in 2010, branded consumer food manufacturers expect a challenging year ahead amid steep rises in commodity prices.

While sales continue to improve on strong domestic consumption, businesses are feeling the pinch of costlier raw materials, putting pressure on their margins.

The Bangko Sentral ng Pilipino (BSP) has raised its inflation forecast for this year from 3.6 percent earlier to 4.4 percent, or above the mid-point of its three to five percent target range.

Coming off a solid year, Gokongwei-led Universal Robina Corp. (URC) was the first to take the hit after it reported that its unaudited net income in the first quarter of its fiscal year fell 32 percent to P1.35 billion from P1.97 billion the previous year on costlier raw materials.

“We are still growing in terms of revenues, but rising costs will have a big impact on margins,” said Bach Johann Sebastian, URC senior vice president for corporate planning.

Raw materials and packaging account for about half of URC’s total cost of goods sold, which grew 24.4 percent to P12.480 billion from P10.03 billion previously, Bach said.

Concepcion-led RFM Corp. also expects its net income growth to slow down to 20 percent this year from 71 percent in 2010, taking into account the potential impact of higher commodity prices.

“We may see a further increase in prices of commodities, but we believe that that can be offset by better cost management,” said Felicisimo Nacino Jr., RFM executive vice president and chief operating officer.

Aboitiz-led Pilmico Foods Corp., one of the country’s largest manufacturers of flour, said wheat prices have risen 40 percent in the last 12 months, adding that the firm’s performance will hinge on the regulator’s approval to pass on increases to consumers.

“I cannot tell if profits will go down, but it will be a challenge to maintain the margins we had last year because costs are going up very fast,” said Stephen Paradies, Aboitiz Equity Ventures Inc. chief finance officer.

The three companies have fixed their contracts ahead but they said the deals can only protect them for a short period of time. They warned that when all cost-cutting measures are exhausted, they will have to increase prices of their products.

URC has raised prices by 3 percent to 5 percent, while RFM has hiked
prices by a percent to 3 percent. Another round of price increases may happen if rising costs persist in the next few months, they said.

Pilmico has yet to impose price hikes since it was making use of wheat stocks bought at lower prices, but Paradies warned of adjustments down the road.

Because of inflationary pressure, URC expects last year’s strong consumption, which fuelled sales growth, to take a hit as demand may dwindle.

“The Philippines is a consumption-driven economy and the worst thing that can happen to it is inflation,” Sebastian said.

Brisker economic activity however may provide a cushion, according to Paredies.

“We still see that demand is quite strong because the economy is in good shape. Overseas remittances continue to grow and industries like tourism and business process outsourcing continue to perform very well,” he said.

Astro del Castillo of First Grade Holdings said companies are more prepared for price shocks, having learned their lesson from the Asian financial crisis.

“It’s a different ball game now. Most have already streamlined their business operations and they are well-equipped now,” he said. –KRISTA ANGELA M. MONTEALEGRE REPORTER, Manila Times

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