Price watch

Soaring logistic prices and material shortages had manufacturing companies on their toes last year trying to keep production up and the pass through of the costs to consumers in check. This year there is a new worry.

Local manufacturers are keeping watch on the Russia-Ukraine crisis which entered its sixth day on Tuesday – a conflict that could trigger further price increases for food, groceries and other consumer items on inflation-wary Jamaicans, the manufacturers have warned.

The conflict has weighed heavily on commodity prices, including wheat, oil and gas, and metals.

Food commodity prices skyrocketed following Russia's invasion of Ukraine last Friday, after weeks of geopolitical tensions, latest data showing that oats and palm oil prices are up north of 80 per cent year over year.

Wheat prices have jumped 47 per cent in a year, as of Tuesday. The grain was trading at US$9.84 per bushel at midday, its highest level since 2008, while eventually settling even higher at US$10.02; corn also spiked to US$7.40 per bushel and oats to US$7.31 per bushel. Palm oil was being offered earlier at US$1,925 per tonne, while crude oil closed above US$103 per barrel in a return to the highs of 2014.

It means consumers are likely to start paying much more for grocery and other consumer items, for example, retail flour and bread, which are impacted by wheat and other grain prices, and soap and other personal care items that are impacted by palm oil prices; and generally face higher electricity bills and petrol prices, which are affected by oil and natural gas prices.

Russia is said to supply 12 per cent of the world oil market, while Ukraine and Russia together are reported to control just about 30 per cent of the wheat market.

The value of trade that flows between Jamaica and Ukraine is about US$300,000, based on 2020 data; and for Jamaica and Russia it's around US$68 million, mostly related to alumina. The most recent data sourced from Statin values Jamaica-Ukraine trade at US$2,604, and Jamaica-Russia trade at US$45.4 million for the period January to October 2021. But while Jamaica has limited trade exposure to the warring nations, business and consumers alike will feel the secondary effects of the impact of their conflict on world markets. “The conflict will have wide-ranging impact on many commodity prices. With so much of the global supply of grain originating in Ukraine, we have already seen an immediate spike in price that will translate to higher prices everywhere, including Jamaica,” said Richard Pandohie, CEO of Seprod Limited, a top manufacturer of food and other products and co-owner of flour mill Jamaica Grain and Cereals Limited.

Jamaica largely imports grains from the United States and to a lesser extent, Canada. Accordingly, the impact on price is not expected to be immediate. The raw materials already in stock could last a few weeks and serve to cushion some of the effects, but if the war lingers on, price adjustments are seen as unavoidable.

If consumers are to be spared the full brunt of increases, manufacturers say it's up to the Jamaican Government to come up with a policy response to minimise the impact on production costs before the full effect of world commodity prices reach them.

“If there are increases in flour prices then with that will come an increase in prices for baked goods. Our prices remain the same, but if the tensions continue then we might be seeing some price differentials,” said Steven Skyes, operations manager at breadmaker and snacks maker National Baking Company.

The latest price adjustment for flour by primary supplier Jamaica Flour Mills Limited, JFM, was on January 31.

On Tuesday, JFM told the Financial Gleaner it has no immediate price changes scheduled, but industry sources reckon that could change within the next month when JFM is said to be due to import its next shipment of wheat.

However, it's still too early to speak on the extent of the possible price increases, Pandohie said.

The war being waged by Russia comes atop the supply chain disruptions that emerged under the pandemic and are yet to be fully unravelled, coupled with low crop output in the United States and Canada, which has served to exacerbate the global deficit of wheat supplies, leading to price surges since 2020.

The degree of the impact on local prices, said Pandohie, will depend on the duration of the war and how other issues play out, such as petroleum and energy prices.

“It's early days in the conflict and there is high volatility, so we need to watch and see how event will play out,” he said.

karena.bennett@gleanerjm.com