The brewery industry is now facing severe cost pressure as prices of local raw materials rise astronomically undermining their backward integration strategy.
Industry stakeholders said the cost pressures coming from sorghum, wheat and others would remain elevated, driven by the impact of rising inflation, insecurity across agricultural belts in the country as well as other macroeconomic challenges.
Financial information from the four leading manufacturing companies listed on the Nigerian Exchange Limited, NGX, shows that the finance cost (interest on borrowing) jumped by 191.2 percent to N125.5 billion in Q1’24 from N 43.1 billion in the corresponding period of 2023, Q1’23.
The affected companies are Nigerian Breweries Plc, Guinness Nigeria Plc, International Breweries Plc, and Champion Breweries Plc.
The Vanguard reports that the brewers had embraced a backward integration strategy to help them save money against imports due to exchange rate volatility.
However, the strategy has now started failing with local raw materials expenses by leading brewers increasing 113.6 per cent to N188.0 billion at the end first quarter of 2024, Q1’24, from N88.0 billion a year earlier, Q1’23, and the industry interim reports have indicated further rises in Q2’24 with no respite projected for this year.
Industry experts are now worried that the failure of the policy would lead to a return of massive importation of raw materials despite the foreign exchange implications.
This development, they also believe, amounts to another blow to Nigeria’s industrialization and employment generation.
Meanwhile, Vanguard findings have also shown that under the rising cost pressures, the top four leading Nigeria’s breweries resorted to bank loans to support cash-flow thereby accumulating credits amounting to N812.7 billion in the first quarter of the year, Q1’24.
The amount indicates almost 29 percent increase in borrowing quarter-on-quarter.