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Business News of Saturday, 21 May 2022

Source: thebftonline.com

Rising food prices: Manufacturers, traders must consider sachetisation for reprieve

Inflation rises to 23.6% in April 2022 Inflation rises to 23.6% in April 2022

As the threat of food insecurity hangs heavy owing to rapidly accelerating inflation – coupled with a hard-hit local currency eroding the purchasing power of consumers, even for bare necessities such as food – a number of stakeholders along the food value chain are calling for the adoption of sachetisation to provide short-term relief, particularly, for consumers.

Sachetisation refers to the repackaging of goods into smaller quantities (sachets, but also packets and bottles) without sacrificing quality. It is done primarily in response to a cost-induced fall in aggregate demand, allowing more affordable options to cash-strapped consumers.

In an interview with the B&FT, Financial Analyst and Director of Business Operations at Dalex Finance, Joe Jackson – who has recently warned of possible food-rationing at the household level – said the benefits to businesses and consumers, who otherwise are in danger of not being able to afford some commodities, outweigh the possible costs that might arise in the short-term.

“With the level of inflation that we are experiencing, sachetisation makes a lot of sense as it will allow manufacturers to provide their products at the price point that consumer can afford without incurring any wastage. A lot of manufacturers bag their items locally and would not require additional research and development, so the shift can be done rather quickly,” he explained.

Mr. Jackson added that as a matter of expedience, the principle behind sachetisation should be extended to other spheres including financial services delivery.

The sentiment was echoed, in part, by the Greater Accra Regional Chairman of the Association of Ghana Industries (AGI), Tsonam Cleanse Akpeloo, who said the situation calls for innovation and adaptation on the part of manufacturers.

“This is not a policy issue from our perspective, but a business one. Individual businesses should look at the prices and sizes of their goods and services and juxtapose them with the real, disposable income of consumers amid all that is going on,” he remarked.

The AGI representative was however quick to add that sachetisation is only a stop-gap measure, as rising prices will eventually trickle down to the final consumer irrespective of the size of the product consumed. He said efforts must be amplified in food production and storage.

“We are now feeling the true effects of COVID-19. At the time, many of our farmers did not participate fully in the planting season and we are seeing the effects now… More must be done to incentivise them, and there should be a keen focus on food preservation as the uncertainties are not fully over,” Mr. Akpeloo said.

A manager at a local Fast Moving Consumer Goods (FMCG) company, who pleaded anonymity as he is not authorised to speak on the issue, welcomed the suggestion of increased sachetisation – adding that his outfit will strongly consider adopting it in the short-term.

Maame Esi Ankrah, who sells consumer products in the Central Business District (CBD) of Accra, said it would likely provide relief in the short-term.

“Perhaps we should have one and two kilogrammes of packaged rice, as many are not even able to afford the five-kilogramme bags. Sometimes, we see people contributing to buy one of the small bags and go off to share it among themselves,” she explained.

Consumer prices accelerated to 23.6 percent in April, a 4.2 percentage points increase from the figure recorded in March – representing the highest spike in almost two decades and the eleventh consecutive monthly increase.

This was driven largely by the cost of transportation, which recorded a 16.1 percentage point leap to end April at 33.5 percent and drove food inflation to 26.6 percent.

This has heightened concerns over food insecurity, especially as domestic consumers spend approximately 40 percent of their income on food. Bread, maize, and meat are among the staples that have seen their prices rise by more than 30 percent year-to-date.

Recent developments have also seen the International Monetary Fund (IMF) in its Regional Economic Outlook Report warning of dire consequences for the continent’s poorest households.

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