The National Flour Mills Limited (NFM) of Trinidad and Tobago purchases most of its raw materials and is therefore subject to the vagaries of international trade. We are also operating with aged plant infrastructure which impacts the level of production output. As a manufacturer of food and feed products, NFM is now investing in modernising its facilities to ensure that we can meet the needs of our customers on time and in full. We are investing in technology and equipment to increase the reliability of supply and the quality of our products. Greater focus will be placed on risk management so that we are better equipped to anticipate and mitigate the risks to our business. We also continue to invest in the growth and development of our employees through the provision of technical and leadership training for our team members.

Given the unpredictability of grain prices, the need for strategies to ensure the sustained viability of the Company has become even more important. In 2021, our flour manufacturing operations sustained a loss due to exorbitant grain prices. We therefore had no option but to increase the prices of our flour and feed products in 2022.

NFM was able to achieve a 5.7% increase in revenue, but was unable to avert an increase in cost of sales by 19.2% year on year, resulting in a 30.6% decline in gross profit. Net profit after tax was $1.3M. Significant increases in the price of soybean meal and corn forced NFM to raise the price of its animal feed products in February 2021. These price increases ranged from 3% to 14%.

One of the major factors for the increases in the cost of grain was extremely high demand from China. Dry weather conditions in South America and labour strikes in Argentina in January 2021 further exacerbated the situation. According to NFM, while it has been able to secure sufficient wheat stocks to guarantee that Trinidad and Tobago has an adequate supply of flour for the remainder of 2022, the cost of wheat to NFM has increased by a further 49 % 2022, due to the ongoing war in Ukraine.

NFM announced on Tuesday that there will be 33 % increase in the wholesale price of flour, with a suggested increase averaging 28 % on the retail price of flour. The increase is set to take effect from Wednesday (June 22, 2022).

Nutrimix Flour Mills announced today that it would increase the price of its flour products as the company continues to face the negative impacts on global wheat production, its availability, and associated soaring prices.

The company said that the ongoing war between Russia and Ukraine, severe weather conditions in several grain and wheat-producing countries, and the decision by some of the worlds largest wheat-producing nations to curtail their exports have contributed to price escalations on the international markets that have adversely affect all countries.

While our company takes its responsibility to promote food security seriously, this has meant paying significantly higher prices for commodities, a reality which we cannot fully continue to absorb. Although we have sought to manage our operating and other costs to minimize the knock-on effect on our customers, Nutrimix faces no alternative option but to implement a price increase at this time.

"Our company will therefore apply a 10%-33% increase in the prices for our Country Pride and Nutrimix Premium Grade brands effective 27th June, 2022

i. Discuss giving two arguments justifying the price increase by NFM and Nutrimix.

ii. To what extent can three (3) internal economies of scale be used to reduce long run average total cost of both NFM and Nutrimix?