PETALING JAYA: Despite a fall in various raw material costs, food prices continue to remain high and unchanged for the public at large.
As a lot of raw material cost has fallen, some food manufacturers have also experienced growing profit margins in their recently reported financial quarters.
This is happening amid ongoing concerns on inflationary pressures on food prices among consumers.
With the exception of rice and cocoa, it is notable that many key basic food costs have fallen back to their multi-year lows from the peak seen last year in the international markets.
But when the opposite happens, a common reason manufacturers are quick to use when justifying a rise in end prices to the consumer is that component “costs have gone up”.
For example, wheat prices have fallen more than half than what they were at their historical peak in March 2022 to US$5.92 per bushel at the time of writing.
Wheat is a key ingredient in making bread and confectionery products.
Meanwhile, corn, which is used in bakery products and chicken and pork feed, has also seen prices fall on the Chicago Board of Trade to US$4.82 per bushel from its April 2022 peak of US$8.13 per bushel.
Other common raw food component costs have also seen similar declines although to a lower degree, including coffee, soybean and milk of around 37.4%, 20.4% and 27.7%, respectively, at the time of writing compared to their recent 2022 peaks.
Food costs became a major concern last year as the Russia-Ukraine war, which threatened global food supply chains, ignited in February.
Since these food commodities are traded in the US dollar, the ringgit has weakened by a much smaller degree of about 11% today compared to what it was in 2022 when Russia invaded Ukraine.
Meanwhile, shipping costs have also fallen as seen on the Baltic Exchange’s main sea freight index, which saw a sharp 75% drop from its recent peak in September 2021.
Food manufacturers that are traded on Bursa Malaysia include Hup Seng Industries Bhd
, Apollo Food Holdings Bhd, Power Root Bhd and Kawan Food Bhd.
Among these stocks, predictably those involved in the biscuit and confectionery making industry like Hup Seng and Apollo Food had seen strong gains in their net profits.
Hup Seng had seen its net profit margins for the most recent quarter ended June 30 more than doubling to 10.7% from a net profit margin of 4.11% in the same quarter a year ago.
Hup Seng said in its financial statement that the increase in its pre-tax profit in the year-to-date was mainly due to improvement in contribution as a result of cost reduction of certain major input materials.
Apollo Food, which is a maker of confectionery products including chocolates that are made of cocoa, had in its most recent quarter ended July 31 experienced net profit margins of 13.1% compared to 9.4% in the quarter ended Jan 31, 2022 (before the Russia-Ukraine war price spikes).
Apollo Food’s net profit in its first quarter ended July 31, 2023 had seen a year-on-year rise of 68% despite only a 5% rise in revenue compared to the same quarter a year ago.
An analyst pointed out that the fall in raw material costs is likely a main factor for the vast improvement in its bottom line.
Meanwhile, Interpacific Research said in a note that Kawan Food had seen weaker demand for its frozen food and lower cost efficiency in its production process, which had dragged down its recent profit delivery.
Power Root saw nearly unchanged year-on-year revenue and net profit of RM112.41mil and RM15.29mil, respectively, in its first quarter ended June 30, 2023.
“We expect some food and beverage (F&B) players’ margins to benefit from the downtrend of commodity prices and depleting high-cost inventory in upcoming quarters.
“We also understand that some players have revised the average selling prices on certain products by 5% to 10% to offset rising costs and protect margins,” AmInvestment Bank Research said recently.
