Despite welcoming the continued reduction in consumer inflation to 5.8 per cent, partially due to the falling prices of some commodities globally, local distributors and manufacturers have indicated that the price of food and household goods will still hold value, pointing to a "mixed bag" or variable movements in the cost of inputs.
"We have seen cost reductions on some commodities, driven primarily by reduced freight rates. However, we continue to experience inflation in other areas. This counterbalance is likely to lead to more stable prices and fewer price increases on food products in Jamaica this year," GraceKennedy (GK) Group CEO Don Wehby told Jamaica Observer when asked his expectation of prices over the next year.
The inflation to which Wehby refers is seen in the Statistical Institute of Jamaica's Producer Price Index accounting for the cost of raw materials and other inputs in the productive sector. For the month of March 2023, the index for the manufacturing industry fell by 0.1 per cent due to a 1.8 per cent dip in 'refined petroleum products'. At the same time, there was a 0.2 per cent uptick in 'food, beverages and tobacco' category.
When compared to production costs in March 2022, the point-to-point index for the manufacturing industry moved up by 4.2 per cent due to increases in the production cost of 'chemicals and chemical products' and 'food, beverages and tobacco'. However, over the last 12 months the production cost of 'refined petroleum products have declined 11.4 per cent.
While expressing satisfaction with the downward trend of inflation — both production and consumption — Wehby pointed out that from GK's standpoint, the company continues "to implement cost-containment and cost-reduction strategies… to ensure that they reflect the prevailing market conditions for the benefit of our customers".
This was also the posture of Richard Pandohie, CEO of Seprod Group, who said that the company has been passing on price reductions to its customers since September last year.
"Seprod has committed that as the cost of its inventory comes down, the pricing will pass on to the consumers and we have been manifesting that since last year. We have reduced flour price [as] wheat price has come down. We actually had another reduction last month, in May, on especially the most commonly used flour — counter flour — which is used by most of the retailers," he told Business Observer, adding the cost of baker's flour had not declined by the same rate.
Notwithstanding, the company continues to pass on cost-saving to its consumers by reducing the price of shortening, Miracle milk, condensed milk, and cooking oil. On this note Pandohie shared that consumers can expect a further price cut to cooking oil next month.
According to the United Nations Food and Agriculture Organization, the Food Price Index for April grew by 0.8 per cent as the cost of meat, up 1.5 per cent, and sugar, up 22.4 per cent, were the major contributors for the increase. At the same time, the price indices of cereal, vegetable oil and dairy fell by approximately 2 per cent across the board.
"We believe we're in a partnership with consumers… and for us to remain in business, we have to sell, we have to have volumes, [but] we have to find right balance between being a profitable enterprise and ensuring our consumers can afford our goods not just in Jamaica, but in the wider Caribbean, because we're supplying the region," the Seprod Group CEO stated.
"So we continue to sharpen our pencils to look at opportunities to increase productivity, to reduce costs," he continued.
Still, Pandohie explained that there are elements of the company's cost structure that cannot be controlled or predicted within the local context such as security and insurance, which have "gone up significantly".
Moreover, he said that while the price of some food-based commodities have lowered, "there's been a mixed bag, but for the most part the trend has been downward".
While these cost reductions would have some impact on distributing and manufacturing company Wisynco, Chairman William Mahfood, like Pandohie, pointed to other costs that must be considered in the price end-users pay. Specifically, he listed labour, electricity, packaging and transportation as the major contributors.
"What has happened is that because of inflation over the last year, most salaries would have gone up in Jamaica, and I'm speaking specifically to the Jamaican context. Most salaries would have gone up maybe 18 – 20 per cent in the private sector just to keep people's salaries in line with inflation," he outlined, adding that labour accounts for a quarter of direct costs.
In the same vein, he said that electricity has doubled over the last year due to rising energy cost, but now there is a downward movement. Packaging has also risen over the same period.
"Our truckers are paying more money for tyres and batteries, so we have to give them increases, so our transportation costs go up," Mahfood added.
But the company has realised some cost-savings from reduced freight. In addition, Wisynco has been able to cut costs by purchasing inputs such as LNG and sugar through forward contracts — buying large volumes at low costs to hedge against future price increases.
Commenting on the impact on the company, Mahfood noted, "We [Wisynco] also would have had price increases in the last two years a couple of times and our price increases. We don't have the type of price increases that food companies have. Our price increases usually range on average annually between 3 per cent and 4 per cent, so not very large increases. [But] in the last two years, those would have been higher based on what was happening in the market. This year we are back to that kind of level."
At the same time, he concurs with Pandohie that the costs of finished goods from overseas have increased, driving up cost of sales.
Looking on the overall market, the Wisynco chairman said he expects that prices will begin to taper off as the value of commodity-based products reverse and with supply chains "self-correcting". Put another way, as supplies increase over time, he expects competition to drive down prices.
In its Commodity Market Outlook report, the World Bank Group forecasts that the prices of commodities will "decline this year at the fastest clip since the onset of the COVID-19 pandemic".
While the bank forecasts an 8 per cent fall in food prices for 2023, it notes that "they will be at the second-highest level since 1975.
"The surge in food and energy prices after Russia's invasion of Ukraine has largely passed due to slowing economic growth, a moderate winter and reallocations in commodity trade," Indermit Gill, World Bank chief economist and senior vice-president for development economics, stated, adding that "this is of little comfort to consumers in many countries" since food prices will remain at one of the highest levels of the past five decades.
The report also projects a 26 per cent fall in the price of energy and a 37 per cent dip in the fertiliser costs. Notwithstanding, the World Bank warns that there a possible headwinds that could fan the flames of inflation.
"The decline in commodity prices over the past year has helped reduce global headline inflation. However, central bankers need to remain vigilant as a wide range of factors, including weaker-than-expected oil supply, a more commodity-intensive recovery in China, an intensification of geopolitical tensions, or unfavourable weather conditions, could push prices higher and reignite inflationary pressures," Ayhan Kose, the World Bank's deputy chief economist and director of Prospects Group, remarked,
Pandohie, the Seprod Group CEO, however, offers some a silver lining for the local productive sector and consumer prices.
"So a lot of underlying costs have gone up and we have to counteract that by not increasing prices to customers necessarily, but by finding opportunities to improve our efficiencies and productivity," he said, revealing that the company has considered new technologies to improve output, reduce costs, and cut waste.