N2.7trn Raw Material Costs Put Consumer Goods Firms in Crisis Mode

A breakneck rise in the price of raw materials and shortages of key components are creating a logistical nightmare for consumer goods firms whose earnings have been depressed in the face of macroeconomic headwinds.

BUA Foods Plc, Dangote Sugar Plc, Nestle Nigeria Plc, Nascon Allied Industries Plc, Nigeria Breweries Plc, and International Breweries Plc collectively incurred N2.70 trillion in raw material costs, which is 63.64 percent higher than 2023’s N1.65 trillion, according to data compiled by MoneyCentral.

Sector players are vulnerable to fluctuation in commodities prices and exchange rate volatility as they import some of the raw material components needed in the manufacture of their products.

For instance, Dangote Sugar has a dependence on imported raw material as over 90 percent of its raw sugar is imported, which is why the largest producer of the sweetener incurred N208.90 billion in foreign exchange losses that resulted in a loss after tax of N192.61 billion.

While Nestle Nigeria and Cadbury source 80 percent of their raw material locally, they both have seen higher input costs on the back of rising inflation.

Consumer goods sector has been beset by a mirage of challenges such as foreign exchange shortages and the Naira devaluation, lower purchasing power of consumers due to the unabated inflationary pressures, and the rising cost of commodities.

The rate of inflation at the end of December 2024 stood at 34.80 per cent which exceeded the 21.40 per cent that the Central Bank of Nigeria had set as a target for the year.

Other challenges include insecurity in the food producing region, decrepit infrastructure, as supply chain bottleneck exacerbated inflationary pressures.

The Food and Beverage subsector felt the most pang of rising inflation that drove up the cost of production.

A higher cost of production means profit margins for companies are squeesed.

Of course, the devaluation of the currency which brought on foreign exchange revaluation losses battered earnings before interest taxation and amortisation margins.

Further analysis of the financial statement of the consumer goods firms shows BUA Foods spent N91482 billion on raw materials in December 2024, which is 104.39 percent higher than 2023’s N447.58 billion.

Dangote Sugar Refinery’s raw material cost was up 84.46 percent to N546.05 billion from N296.02 billion the previous year.

Nigerian Breweries’ costs of N615.13 percent make up over 80 percent of total cost of production.

Nestle Nigeria incurs N357.54 billion in raw material costs to end 2024 financial year, which is 114.12 percent higher than 2023’s N166.98 billion.

Nascon Allied Industries’ raw material costs rose by 78.14 percent to N55.88 billion in December 2024 from N31.37 billion the previous year.

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