Fan Milk Tests Pulse Of Ghanaians

A section of Ghanaians are inferring that last week's price increases of the products of Fan Milk Ghana Limited was politically motivated to spoil the 'honeymoon' of President J.A. Kufuor's new administration.

However, a source close to the management of the company has explained that the price increases were a normal management decision initiated to reduce the huge foreign exchange losses for the importation of its raw materials to keep the company in business.

Fan Milk, the main dairy producer in Ghana created a stir in business circles last week when it announced price increases for its line of dairy products ranging between 10% and 50% because of the high cost of raw materials. The company is recording huge losses. Fan Milk, which sold for ?900, now sells at ?1,000 while Fanyogo and Fan Chocolate, which were sold for ?1,000, now sell for ?1,500.

The populace has been waiting patiently for the New Patriotic Party (NPP) government to announce its first budget after forming a cabinet. The electorate has high hopes that the 2001 budget will not feature drastic price increases. Many people believe that the 2001 government budget statement will have a human face to fulfill their expectations for change and to make the cost of living easier.

Nevertheless, Ghanaians were taken by surprise when Fan Milk, which holds a monopoly over ice cream making, announced the price hike of its products. Some sympathisers of the main opposition party, the National Democratic Congress (NDC) in Accra and Tema have openly registered their protest and alleged that worse is yet to come when the budget is announced.

They further alleged that the government is using the Fan Milk issue as an experiment to test the tolerance of Ghanaians in order to determine whether or not to increase prices, particularly that of oil, which is the prime mover of the economy.

A senior staff at Fan Milk, who is also a distributor of the company's products, has revealed that after the increment, some youth stormed his business at Tema and alleged that it was President Kufuor's administration that authorised the price hike, an issue he found to be strange and unfounded because Fan Milk is a private business which is operating in a free market economy.

Speaking to The Accra Mail in an interview in Accra this week, a Fan Milk representative said that the company was mindful of the interest of consumers and was sensitive to their concerns before implementing the new measures. He said, "It is unfortunate that a section of the public have the perception that Fan Milk uses its monopoly to fix the price of its products."

Fan Milk controls about 98% of the market. The company has developed 19 products in various flavours since its establishment in 1960. It was listed in the Ghana Stock Exchange (GSE) in 1990.

Records available have shown that the company made a loss of about ?2.3 billion in the first half of last year. Industry watchers believe that the second half-year performance of the company will show higher losses than previously experienced since the exchange rate is yet to improve to give a breather to import-dependent companies.

Although the price of ice cream and other dairy products of the company were adjusted upward last year to keep pace with the cost of production, the rapid deterioration of the cedi and the down turn of the economy at that time did not help the company but put it on the list of loss making companies.

Fan Milk is 61% foreign-owned and 39% Ghanaian. It has a stated capital of ?2 billion. The company imports most of its raw materials from Denmark, an arrangement that fits perfectly into a colonial template designed to ensure that Danish dairy farms have guaranteed markets oversea.

Fan Milk sources have explained that they import most of their raw materials from abroad because there is no substitute for them except for vegetable fat and polythene bags that they procure from Unilever Ghana Limited and PolyProducts respectively.

Sources close to the management of Fan Milk have admitted that the price hike has resulted in a sharp drop in sales. However they are optimistic that by March the demand for Fan Milk products will increase sharply.

In its formative years in the 1960s Fan Milk started a dairy farm at Ablekuma near Accra to produce milk as raw material for its ice cream plant. However, the programme was abandoned due to technical reasons and political and economic instability at that time. The area where the farm was located is called 'Fan Milk'.

The idea to establish a diary farm is no longer feasible says a Fan Milk spokesperson. It stressed that in view of the new trend brought by globalisation that puts emphasis on companies concentrating on their chore business, it is convenient for Fan Milk to pursue its legitimate business of manufacturing ice cream. In the circumstances, Fan Milk has no choice but to remain exposed to the high risk of foreign exchange fluctuations. But how long will consumers be prepared to tolerate the periodic price increases?

Ice cream vendors and distributors are feeling the pinch of the price increase as their sales dropped rapidly. The product is highly perishable and holding large stocks without disposing of them in a short time does not make any economic sense.

The Managing Director of Fan Milk, Mr. Jesper B. Jepessen, a Dane, has more problems at hand but is getting used to the harsh and unpredictable Ghanaian economy. In the 1990s he has to come to terms with the energy crisis that caused the fortunes of his company to dwindle. At that time everyone from homemakers to distributors lacked the electricity needed to keep his brands of milk, ice cream and yogurt from spoiling.

Richard Afriyie, an ice cream vendor at Nima, a suburb of Accra, said his sales have dropped to about one-third since the price hike. "Before they increased the price there was shortages for about three days to give depots enough time to dispose their stocks.

"Thereafter, they announced the new prices. Now, my brother, up till now most customers that call for ice cream hardly buy it. They simply say they voted a new government for a change for better but now the price of common a thing like ice cream has increased."

Fan Milk has been recruiting cheap labour in Accra and other cities as vendors of its products particularly street children. In 1994 the company approached the Catholic Action for Street Children (CAS) a local NGO to train boys as ice cream vendors in the street. The company met the costs while CAS organised classes after working hours in eleven ice cream depots.

The scheme was hailed as a success story by CAS but today as Fan Milk tries to put its act together in the midst of price increases the future of these young men remain uncertain, at least for now.