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Soaring grain import costs impact bottom-lines of Omani mills

Key factors: Global wheat prices hit by supply chain disruptions and high demand from importing countries seeking to build strategic reserves in the wake of the Russia-Ukraine conflict
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Two of the Sultanate of Oman’s largest mills – Salalah Mills and Oman Flour Mills – have reported dramatically lower earnings for the first quarter of 2022, attributable primarily to steep increases in the cost of grain imports in the wake of the Russia-Ukraine war.

Raysut-based Salalah Mills, the country’s largest mill by capacity, lamented that skyrocketing wheat prices have hurt its bottom-line.

“Our financial results have been affected by the high price of wheat and our inability to increase our local selling prices,” said Ahmed bin Abdullah bin Saeed al Rawas, Chairman. “The company made a net loss of RO 131,897 during the first quarter of the current year compared to a profit of RO 1,111,439 made in the same quarter of last year, showing a decrease of about 112,” he stated in the Chairman’s Report for the quarter ended March 31, 2022.

According to the official, global wheat prices have been impacted by a combination of factors starting from last year, including weather issues, supply chain disruptions, and high demand from importing countries seeking to build strategic reserves.

Compounding matters for importers is the conflict that erupted between Russia and Ukraine in February. “International wheat prices increased this year sharply because of the Russian-Ukraine war,” said the Chairman. “European, Australian and Argentinian wheat prices increased by more than $100 per metric tonne. USA and Canadian wheat prices are not competitive in the Gulf area. Indian wheat becomes attractive to the big wheat importing countries because of its lower price. However, the Indian wheat prices are increasing because of the new and big demand,” he stated.

Majority state-owned Oman Flour Mills (OFM), the country’s first mill, also reported a significant slump in net profit for the group in Q1 2022. Net earnings after tax dived to RO 0.385 million in the first quarter of this year, down from RO 3.3 million for the corresponding period of 2021, entailing a sharp fall of 88.3 per cent, said Salah bin Hilal al Maawali, Chairman – Board of Directors.

“The Group’s total expenses have increased by 38 per cent as compared to the previous year’s same period. The main reason for its increase is attributed to the increase in the purchase prices of raw material compared to last year,” he stated in audited financial results for the quarter.

Nevertheless, total revenue climbed 17.7 per cent to RO 27.88 million in Q1 2022, up from RO 23.68 million a year earlier, buoyed in spikes in earnings on animal feed and flour.

Parent company Oman Flour Mills SAOG also saw its pre-tax profit plummet to RO 649k this year, as compared to RO 3.88 million in Q1 2021.

The Chairman explained: “Sales revenue has increased by RO 3.63 million (19 per cent) as compared to last year mainly due to increase in sales volume by 12.5 per cent and increase in sales prices by 6.5 per cent. Further, raw material cost has increased by RO 6.84 million (54 per cent) mainly due to an overall increase in the prices of raw materials (grains) by 47 per cent and 8 per cent decline in cost of material due to volume mix. This has led to an overall decrease in the operating profit by RO 2.9 million (- 88.8 per cent) as compared to last year.”

As leading suppliers of flour and related grain-based products for the domestic market, Salalah Mill and Oman Flour Mills account for a sizable share of grain commodities procured by the Sultanate of Oman from leading international producers, notably Russia and Ukraine. According to media reports, the two farming giants had accounted for around 70 per cent of wheat shipments into the Omani market.

But with the outbreak of hostilities between the two countries, local mills have since turned to other wheat exporting nations to secure their respective grain requirements. For example, Oman Flour Mills recently announced that it had established a new company in Australia, a major farming nation, to secure its grain needs directly from local producers.

“OMAUS Pty, the new Australian entity, is currently drafting a supply agreement and will coordinate a trial shipment with growers,” the Chairman noted in the Directors’ Report.

At the 10th Oman-India Joint Commission Meeting, which concludes in New Delhi on Sunday, India also pledged to meet the Sultanate of Oman’s wheat requirements. Some shipments procured by Oman Flour Mills have already been delivered, according to reports.

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