Quality Foods Southland chief executive Cameron Scott said a tsunami of ballooning costs has the company struggling against its tightly squeezed bottom line while meeting its supply contract obligations.
"We’ve never had challenges one tenth of this proportion in the history of the company. To say we are concerned is an understatement."
The 24-hour company operation had been told its new industrial power costs would be increasing by an eye-watering 72% in November after it its three year contract expired.
"I need to find another $220,000 just purely to cover the increased power costs."
Quality Foods’ Auckland-based sister company’s power bill had gone from $1 million a year to $2 million.
Increased power was only one of the increased cost-of-goods elements. The company also has to navigate a 40% increase in flour.
"Unfortunately the story is not just flour. It’s oils, margarines and butter. Every commodity has gone up significantly."
All had increased about 50% in the past three months.
The company used about 1000 tonnes of butter a year. The previous highest record price was $8500 per tonne. It was now $10,500 per tonne.
Container shipping costs to Australia for about 100 containers a-year had also more than doubled.
"Our freight cost has gone up from around $6000 a container to $16,000."
"So that is $1 million we have to find without pushing our price increases over the top to lose our Australian business."
Mr Scott believed it was the sanctions on Russia that were causing a nightmare for businesses.
"I don’t think the world realises how important Russia is as a trading partner for oil, gas, flour, oils, grains and fertilisers ... [the sanctions] they are imposing on Russia are killing the rest of the world by significant proportion."
He did not expect any relief on the commodities market until the sanctions were lifted, and believed raw ingredient price increases would push inflation up to between 20-40% as many supermarket products contained fats, flours or starches.
Mr Cameron wanted to emphasise, despite the challenges the company was dealing with, there were no plans to alter staffing levels for the 75 staff it employed at the factory.
Energy Link managing director Greg Sise, who brokers large consumer contracts, said typically industrial power users would negotiate five-year term contracts which levelled power costs over the term. But electricity had doubled in price since 2018. Large increases could be expected at the end of longer power contracts.
Mr Sise expected electricity prices to ease in the future in the next 18 months as the price was influenced by the supplies coming from New Zealand’s natural gas fields where production had increased, easing the load off the Huntly coal-fired plant.
The Ukraine-Russia war and sanctions had profoundly impacted global coal prices.
He encouraged industrial power consumers coming off contracts to seek advice from brokers who were skilled at negotiating competitive prices.
"If they don’t want to wait 18 months to get a better price, they could look at contracting longer than they had in the past."
Mr Cameron said there was no getting away from all the price increases.
"It’s very real. It’s horrendous, what we are facing and there doesn’t seem to be any alternative."
- By Toni McDonald
