Shemen oil sales hit by competitive imports and kashrut license debacle
Even a staple product such as cooking oil is suffering from these troubled times. Shemen Industries reported a 19 percent drop in sales for the first nine months of the year (not consolidated), and an operating loss of NIS 10 million.
According to Moti Navon of Shemen, sales were particularly hit by the sharp drop in soy bean prices on the international markets, and the fall in import duties on cooking oil. The gradual restoration of import duties to their former level of 4.5 percent, which will allow Shemen to raise its prices to those of its foreign competitors, will not bring immediate returns, Navon said. An improvement will be seen in future quarters, as the importers were still sitting on large inventories of oil, free of import duties, he explained.
Navon said that the added value in oil production was very low, and a 1 percent extra import duty would have disproportionate impact on Shemen's bottom line. "In competing with foreign companies," said Navon, "Shemen loses out as our plant does not operate on the Sabbath, and the large inventories that we must maintain for security reasons."
The reduction in duties does not hit Shemen's sales, as the company brings its prices down to compete with imports, and ends up selling the same quantity but for less revenue. "All we demand," said Navon, "is fair competition with imports."
The loss of a kashrut license from Badatz kashrut board affected the company through a 25 percent drop in sales to the industrial sector, which was pressured to stop buying Shemen's products. This sector accounts for NIS 25 million of activity for Shemen each quarter. According to Navon, Shemen lost its Badatz license because of a plan (to operate the plant on the Sabbath) that was never put into effect.
In the first nine months of the year, Shemen reported consolidated sales of NIS 294 million, up 16 percent, though this includes sales of consolidated subsidiaries. Shemen posted a consolidated operating loss of NIS 5 million in the third quarter, compared to a NIS 7 million profit in the corresponding period of last year.