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Oman’s food sector bottom-line hit by Ukraine War fallout in 2022

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A number of Omani publicly-traded companies operating in the food processing and dairy sector have reported varying impacts to their bottom-line from a steep rise in the cost of imported wheat and other raw materials last year – an increase induced primarily by the Ukraine-Russia conflict.

According to some of the leading players, imported wheat prices were up by an average of 30 per cent during the year, while input costs for animal feed production jumped by an average of 50 – 100 per cent. However, payouts by the government in the form of wheat and feed subsidies did help mitigate these additional costs, they noted.

Oman Flour Mills, majority-owned by Oman Food Investment Holding Company (Nitaj), said an uptick in sales revenue during the year was offset by an increase in raw material prices.

“Raw material cost has increased by RO 24.6 million (36.2%) mainly due to an overall increase in the prices of raw materials (grains) by 22.8%... This has led to an overall decrease in the operating profit by RO 2.5 million (-42.8%) as compared to (2021),” said Salah Hilal al Maawali, Chairman, Board of Directors.

However, an initiative by the Ministry of Finance to provide a subsidy to flour millers and animal feed producers helped address the impact of “fluctuating grain prices”, Al Maawali added in the Chairman’s report for the year.

Raysut-based Salalah Mills – the nation’s biggest flour miller by capacity – warned that elevated international wheat prices would have an adverse bearing on its profitability.

“The purchase of wheat is a very important decision,” Ahmed Alawi Abdullah al Dhahab, CEO, explained in the Management Discussion & Analysis report for the year. “The management monitors the international wheat prices closely to make proper planning, as the cost of wheat represents about 80-85% of the production cost. The company ensures that it stores enough stock of wheat to keep providing its customers with all the products they need. The international wheat prices increase by more than 30% in 2022. Company net profit will largely depend on the customers’ ability to accept higher selling prices,” he stated.

Dhofar Foods & Investment Co SAOG, a key producer of dairy, poultry and animal feed products, lamented that fallout from the Ukraine crisis had impacted the company’s bottom-line in 2022.

“The Ukraine / Russia war has escalated the major prices of all commodities imported by the company,” said Nasser bin Mohammed al Harthi, Chairman. “Logistic sector costs increased by 200 - 300% due to rising crude oil prices and post-covid container shortages. The gross profit of the company declined to 11% compared to 12% in the prior year. The profitability was under pressure due to regulated prices in dairy business.”

Eng Ali Hilal al Kuwari, Chairman – A’Saffa Foods, also blamed the Ukraine conflict for a “steep increase” in feed raw material prices. “Our major raw material prices increased by 50% to 100%. The management took the proactive decision to mitigate the impact of the high material prices by improving its sales and commercial activity, in addition to controlling the other costs. We are thankful to the government for the feed subsidy,” he stated.

According to Mohammed Suhail al Shanfari, CEO, high inflation exacerbated by the Ukraine conflict had made food, energy and input costs pricier for the company. “During the year we have seen a very high increase in the prices of soya and maize which are the major ingredients of the poultry feed. Such a steep increase could not be passed on and, as a result, the profit margins of the Poultry and Poultry Products segment of the company have been severely affected,” he added.

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