National Starch warns on price increase

The price of agricultural commodities has soared this year as environmental factors have impacted harvests, and swathes of land previously dedicated to food crops have been diverted to emerging technologies like biofuels. National Starch's ingredients, which find uses in food, beverage, pharmaceutical, encapsulation, and texturising products, are derived from cereals like maize (corn). The company says that structural changes have taken place in the cereals market, and it expects prices to remain sky high for the forseeable future. It is too early say what the new price levels for its ingredients will be, said the company today, but the increase is expected to come into effect before the end of this year. In the meantime, National Starch is concerned to "ensure [its] customers have clear and early warning of the situation".​ Luc Bertram, European sales director for food ingredients, said: "We have worked diligently to reduce the impact of these costs throughout 2007 and to assure a reliable supply in 2008. Unfortunately, the cost increases in our raw materials are unsustainable. Market and environmental conditions beyond our control are the driving factor." ​ Prices for National Starch's food and texturizing starches in Europe last rose in November 2006, by eight to ten per cent. A parallel increase of seven to ten per cent for the US was announced the following month. ​ A spokesperson for the company told FoodNavigator.com that the impending price increase communicated today only applies to European sales. But trade structures mean that raw material costs are a global issue. For instance, maize prices have risen by over 80 per cent in Europe this year. Aside from the biofuels issue, but National Starch flagged demand from Asia as another factor causing supply to dwindle. Today's news from National Starch Food Innovation follows a similar announcement this month from Orafti, which is upping the price of its Beneo prebiotic fibre ingredients from October 1, to the tune of six per cent of liquid ingredients and eight per cent for powdered products. Like National Starch, Orafti said it did what it could to avoid passing on the costs for as long as possible, but the pressure on its margins was no longer supportable. The impact on the food sector at large is a trickle-down effect. Food manufacturers pass on higher costs to the retailer, who passes on costs to the consumer. In some cases, where the ingredient does not form a substantial part of the overall finished product, the impact could be absorbed at manufacturer level. But when a finished product is mostly made up of a commodity - such as wheat in bread, or vegetable oil in margarine - the increases are too great to support. UK retailer ASDA said last week that, wherever possible, it will shoulder the higher prices, but when it comes to dairy and bread it will not be able to support them. In these cases and some others, will have no choice but to pass them on to the consumer. Part of the ICI group, National Starch reported sales of GB£2.01bn in full year 2006. Sales of speciality starches were up eight per cent.