Record sugar prices squeeze food makers
Earlier in the week world prices reached 21 US cents a pound for the first time since 1981, following a price surge of 80 per cent since the start of the year.
Analysts have blamed the record prices on the late arrival of monsoons in India, investor speculation, and lack of investment.
Costs rise
Confectioners and other sugar users in the food industry will begin to see their margins squeezed. Kraft Foods has already reported a $420m increase in commodity costs in its latest half-year results, with increases in prices of sugar, cocoa, oil and grain all contributing to the figure.
Kraft is now putting pressure on government to take action to pull prices down. Along with General Mills and ConAgra Foods, the company asked the USDA this week to raise import quotas in an effort to bring down prices.
But US manufacturers will not be worst affected by the rise in world prices because they already face high domestic prices because of a complex arrangement of tariffs, quotas and subsidies in place to protect its sugar producers, who are unable to compete on price with foreign farmers.
US and EU
Executive VP of Promar International Tom Earley told Confectionery News that US manufacturers are only “indirectly exposed” to world prices. Earley said prices are extremely high in the US generally and that the surge in the world price may put further indirect upward pressure on US prices.
In contrast the EU is becoming increasingly reliant on imported sugar after providing domestic sugar producers with incentives to cut production. The net result is that manufacturers in Europe are now more directly affected by the world sugar price and will see their profits threatened by the current leap in prices.
But Earley warned about exaggerating the impact on confectioners of higher world sugar prices. He said: “High prices are likely to eat into margins to some degree but changes in other input costs may compensate for the losses.”
At the moment cocoa is quite costly but other confectionery ingredients such as milk and peanuts are at low levels and will therefore help balance out the escalating price of cocoa and sugar.
The impact on confectionery manufacturers will not be universal as their use of these ingredients varies widely. Cadbury for examples uses a lot of milk in its products and will therefore be benefiting from the depressed milk prices and will not be under the same commodity price pressure as a sweets manufacturer.
