AUSTERITY EFFECT: Flour mill, animal feed, poultry and milk producers worry that any reduction or phaseout of subsidy will impact margins
Muscat - Annual wheat and feed subsidy paid out by the government to a number of Omani flour mill, animal feed, poultry and milk producers could be next in line for possible cuts as part of austerity measures rolled out by authorities at the start of the year, industry observers say.
An assortment of listed Omani companies that have long been beneficiaries of the subsidy have voiced concern that delays in the payout of these annual grants have impacted their bottom lines.
Some are even fretting that, given the budgetary cuts and belt tightening measures announced by the government at the start of the year, the feed subsidy could also go the way of fuel subsidy, as well as a host of other subsidies, targeted to be partially reduced or gradually phased out in light of the current economic crisis.
Articulating these concerns, Hamoud bin Musthail Ahmed al Mashani, Chairman of Dhofar Cattle Feed Company, a major dairy producer, said: "The uncertainty regarding the depth and duration of the current economic situation has cast doubt about the level of subsidy expected next year and in the future.
Till today we have not received any official communication towards discontinuance of subsidy and hence we believe that the government will continue to support basic industries and may give sufficient time to implement new strategies if in case the subsidy is withdrawn," he stated in the Directors' Report of the company 2015 performance.
The Salalah-based firm, which has been receiving feed subsidy since 2011, did collect the subsidy for the first six months of 2015, which is typically based on the consumption of raw materials for the period.
The payout for the remainder part of 2015, which has been already accounted for in the company's books, is still awaited, he said.
Voicing confidence in the continuation of the subsidy policy, Al Mashani remarked: "We also see the government spending at elevated levels to enhance the growth in non-oil sector, of which the food and food related industries would be predominant.
As such we believe that the government would continue to provide necessary impetus to attract necessary foreign investments in these industries to make them as import substitutes and also as part of the food security programme."
He nevertheless warned that any change in the government's policy on subsidy would impact the company's margins.
Similar concerns have also been expressed by the nation's two main flour mills, which have stopped receiving subsidy on wheat imports for over the past two years. "No subsidy on wheat has been paid since July 2013 and the company is regularly following up with the (government) to pay the amount," Khamis Abdullah al Farsi, Chairman, Oman Flour Mills, said in the Board of Directors' report for the six months ended December 31, 2015.
Salalah Mills, the largest flour milling firm, echoed the sentiment. "The company is accounting the value of the government subsidy on flour on an accrual basis from October 2010. The company did not receive any subsidy from July 2013 onwards. We are pursuing this matter with the competent authorities," commented Ahmed Abdullah Saeed al Rawas, Chairman, in the Group's 2015 Director's Report.
Other dairy and poultry farms that depend on government subsidy against the procurement of relatively pricey animal feed are also agonising over the issue of reduced payouts.
A'Saffa Foods, a leading poultry producer, said its feed subsidy for 2015 was dramatically slashed to RO 0.719 million, down from RO 2.189 million in 2014.
Consequently, the company's pre-tax profit declined to RO 6.551 million for 2015, from RO 7.728 million in 2014, Rashid Saif Mohammed al Saadi, Chairman, stated in the company's 2015 performance review.
© Oman Daily Observer 2016
