Choppy market conditions have GK looking to bring home production, price increase looms
Food manufacturing giant GraceKennedy Limited is exploring how it can integrate more of its international manufacturing processes into its five Jamaican plants amid back-to-back catastrophic global events that continue to pressure its supply chains, causing more frequent price adjustments.
The latest event that could trigger price increases to the line of products retailed by Grace Foods is the Ukraine-Russia crisis, a war that has sent oil prices beyond US$130 per barrel.
A similar fate is looming for products that are made from wheat, oats, and other food materials, after Ukraine’s government announced a ban on the export of the commodities on Wednesday to feed its populace amid war.
Richard Pandohie, the CEO of Seprod Limited, a top food manufacturer which is also co-owner of flour mill Jamaica Grain and Cereals Limited, suggests price increases on grocery items and animal feed could range from 20 to 30 per cent over the next six months if the war is not contained.
But Pandohie also tweeted that while many are rightly concerned about increased prices, the more immediate problem is the emerging signs of even greater disruptions to supply chains.
It suggests that at some point, local companies may face more delayed shipments and a shortage of raw materials, the upshot of which would be the disappearance or limited availability of some consumer items.
GraceKennedy itself is still assessing the risk, a report Group CEO Don Wehby hopes to have on his desk early next week, which will guide the conglomerate’s operational response to the war crisis, including containment of the pass-through of costs to consumers over the short term.
“I will be honest, we are seeing a lot of headwinds for 2022 with supply chain challenges caused by the pandemic; then we have rising production costs, so it’s a double whammy,” said Wehby on Wednesday.
“But we have a great team in place, and we are going to be managing it as best as possible to pass on the least amount of price increases to consumers, wherever they are in the world,” he said during an investor briefing to discuss the company’s 2021 annual performance, a year in which GK made record profit of $8.9 billion.
Last year, GK invested some $750 million in its manufacturing operations. The 2022 budget is even larger, Wehby said.
Within the wider scope of its overseas manufacturing activity, the company owns two factories. Its operations include Grace Foods UK, an ethnic and speciality food supplier, which comprises three main businesses: Enco Products Limited, Chada Oriental Foods, and Funnybones Foodservice Limited.
Wehby said on Thursday that 27 per cent of GK revenue comes from locally manufactured food. That implies that GK generates most of its food sales from goods produced in foreign markets.
He also said North and South America were the areas under consideration for shifting production back to Jamaica, and that the products likely to be brought home include frozen vegetables, sauces and marinades.
“We expect our total logistics costs, inbound and outbound, to be lower than currently prevails with external sourcing arrangements,” Wehby told the Financial Gleaner.
He had previously indicated on Wednesday that changes were likely in Canada.
“We want to have 50 per cent of foods manufactured in Jamaica exported by 2025. For example, Tropical Rhythms is produced in the Canadian market; we want to recapitalise our manufacturing systems to ensure that any product that we can manufacture in Jamaica, will be manufactured in Jamaica, not outside of Jamaica, once we are competitive,” Wehby said at the briefing.
“We refer to it as authentic Jamaican products,” he said.
GraceKennedy exported 31 per cent of its total production volumes last year, the GK boss said at the briefing.
“That is a target that I’m going to be holding close to my heart,” he said.
“We need to export more, earn more foreign exchange for Jamaica, earn more foreign exchange for GK, and I think 50 per cent by 2025 is a reasonable target. It’s going to call for additional investment, but we are ready to make the investment, so that we produce more in Jamaica.”
Strategies to maintain consistent supplies of raw materials and other logistical issues are also to be worked through.
Locally, GraceKennedy has been reorganising its manufacturing network for greater efficiency and returns, including construction of a second plant at the Grace Food Processors (Canning) complex to facilitate its merger with National Processors, also known as Nalpro.
National Processors has produced drink crystals, cereals and dry mixes for soups for about 40 years. Canning produces canned vegetables, sauces, and beverages, including Grace Tomato Ketchup and a portion of the company’s Tropical Rhythms drinks.
The other four Jamaica manufacturing facilities are Diary Industries, Grace Food Processors, Grace Agro Processors, and Gray’s Pepper Products Limited.