Over the past year, we’ve witnessed a noteworthy surge in the prices of two key soft commodities: sugar and cocoa. Specifically, between July 2022 and July 2023, sugar prices escalated by over 31.01%, while the cost of cocoa skyrocketed by 54.74%. The question now arises: how will these price fluctuations affect Halloween, one of the holidays most associated with indulgent confectionery treats? To shed light on this matter, Kumar Amit, senior commodity specialist at The Smart Cube, tells us more.
With Halloween approaching, consumers will soon be stocking up on chocolates and sweets, ready to hand them out to trick-or-treaters. However, consumers must prepare themselves for increased confectionery prices due to this substantial rise in the cost of key ingredients.
Sugar prices to remain firm in the near term
In recent months, declining production in major producing countries such as China, India and Thailand has resulted in a steep rise in sugar prices. To describe this sharp increase in sugar prices, a new term emerged: ‘sugarflation’.
This price increase has been driven largely by the El Niño weather event. The weather phenomenon has brought warm and frequent dry conditions to India and Thailand, leading to a decline in sugarcane production. What’s more, it has caused heavy rainfall in Brazil, another key producing nation, which has delayed the sugarcane crop harvest.
This has negatively impacted sugar output, contributing to an increase in global sugar prices. In fact, the intensity of El Niño this year could result in a 10%-15% reduction in sugarcane yield globally, which would only cause the cost of sugar to increase further, and in turn, could translate into higher confectionery prices.
Additionally, the potential decline in sugar production could lead to countries restricting sugar exports. For instance, India might implement a sugar export ban in October, the first such ban in seven years, amid the expected drop in production. This is a concern ahead of Halloween as sugar demand is rising due to food manufacturers requiring the commodity for their goods. This will only add further pressure to the sugar industry and cause the commodity’s price to remain elevated in the short term.
High cocoa prices to persist
Around the world, cocoa prices are currently surging, reaching near-record highs. In July, London cocoa prices touched £2,858/tonne – a 46-year high – while the commodity’s price on the New York stock exchange recently came in at a reported 12-year high of £2,920/tonne ($3,640).
One of the main causes of these elevated prices is tight cocoa supplies in Ivory Coast and Ghana – two nations that are among the leading cocoa producers globally. Supply constraints have been caused by abundant rains in West Africa during the summer months, which has resulted in an outbreak of the black pod disease in cocoa plantations, damaging crops and negatively affecting production. These high levels of rainfall have also created logistical challenges, disrupting supply chains by obstructing roads and impeding truck shipments, preventing goods from reaching ports.
Looking ahead, El Niño is set to cause dry conditions in West Africa, which will subsequently reduce cocoa output. In fact, according to the International Cocoa Organisation (ICCO), the weather event is likely to push the cocoa market into a deficit for the third year in a row, while Ivory Coast has halted cocoa sales for exports for the marketing year 2023/24.
This means cocoa prices may remain firm in the coming months, on account of low stocks ahead of the main cocoa crop harvest season in West Africa. What’s more, stocking activities ahead of Halloween are likely to push up cocoa demand, which has the potential to contribute to the soft commodity’s price remaining elevated in the near term, as well as confectionery costs increasing.
Preventing supply chain disruptions
Both sugar and cocoa constitute key ingredients in the production of confectionery goods. With these commodities rising in price, coupled with the demand for confectionery products increasing as Halloween – and shortly afterwards, Christmas – confectionery prices are expected to rise.
As such, for confectionery producers and manufacturers to avert supply chain disruptions ahead of Halloween, it is imperative that they adopt a multipronged approach to tackle this issue. This begins with supply chain teams identifying and assessing numerous suppliers. Supply chain professionals must avoid being overly reliant on a single provider and region, particularly when a manufacturer is purchasing from territories where sugar and cocoa output is in decline.
What’s more, supply chain teams ought to map supplier dependence. For instance, firms should conduct a thorough assessment of their vulnerability to suppliers from key sugar-producing regions such as India and Thailand, while in the case of cocoa, they should be looking at their exposure to Ghanian and Ivorian suppliers.
Additionally, it is vital to keep track of developing disease outbreaks and unfavourable weather conditions. Looking at the current El Niño event, confectionery producers need to track its progress and frequently examine potential consequences the weather event may have on key regions and suppliers.
Finally, supply chain teams should upgrade their inventory and labour planning process. This requires conducting detailed assessments to gauge necessary inventory levels prior to Halloween and other upcoming events, as well as ensuring that the required inventories are implemented should supply chains become disrupted due to low production from exporting regions.
Overall, sugar and cocoa prices are expected to remain high in the short- to medium-term. However, these price increases may last for an extended period, especially in the event that El Niño’s intensity continues. This would see increased confectionery costs persist beyond Halloween.
© FoodBev Media Ltd 2023