The price factor
But the biggest challenge was corn prices, which hit all-time highs at the end of last year. This raw material represents 83% of Minsa’s fixed costs. In the summer of 2020, the price fell and those who had bought futures and had hedges to insure a cost in the raw material experienced losses.
But in the fall, the trend turned around and prices climbed. “There was pressure to raise the price from all the actors in the chain,” says Gómez. In November 2020, tortilla producers announced increases of 1.5 to 2 pesos per kilo. And, then, there was a call from the government to the flour mills to maintain prices.
“It could be done by calling for solidarity for a month, it was sold even below cost. But already in January the government and the tortilla makers were warned that the price that had been raised for the tortilla was not justifiable with that of the flour, because we were only raising the cost of the tortilla maker from 37 to 46 cents ”, he points out.
In addition, local production was cheaper than the international price and farmers and other customers who do not necessarily buy in Mexico increased their demand. “We were no longer five or six big buyers, there were 20 of us and obviously fighting with the producers over everything,” he recalls.
Julián Fernández, Head of Analysis at Bursamétrica, explains that the costs of raw materials have become more expensive due to a lack of production and storage. “And the few that have been storing hold the market and raise prices,” he explains.
The pandemic also increased logistics and hydrocarbon costs. This could be a future risk, says the specialist, who adds that the company has always remained stable and has been considered a backup or security investment for investors. If the principle of any business, the businesswoman warns, is to buy low and sell high, the situation had been reversed: Minsa bought high and had to sell at low prices.
“It was a complicated subject. Of course, you understood the request, not only from the government, but also from society, not to raise the most basic good of Mexico’s basket, which brings 55% of the calories consumed by the most vulnerable decile of the population, “he says. In February, the company began to raise the price gradually and by zone. Gomez sees it difficult to repeat a situation of these characteristics.
“It has had its obstacles, but it has managed to overcome it in the best way,” says Fernández about the company, which closed the third quarter of the year with a 0.7% increase in sales volume compared to the same period in 2020, but a 16.88% increase in net sales due to the rise in the price of flour. The company has been recovering the margin, after a greater impact at the beginning of the year.
In the period from July to September, its profitability, measured with the profit margin, was 2%, an improvement of 10 basis points compared to 2019, according to its quarterly report. In the end, Gómez concludes, the request to lower prices was not a sustainable solution to a temporary problem. “It is difficult to make the decision to lose money. And it is not that you were losing money, you were losing profits, and it is a difficult decision to sell, even more so when you are a public company ”, concludes Gómez. “But I also think that sometimes you have to know that to make money in the long term, you have to lose it in the short term.”