There’s an aisle of the grocery store where inflation is looking exceptionally sticky: indulgent treats.
Think coffee, chocolates and your favourite snacks. Prices of soft commodities have soared this year because of supply constraints. The return of El Niño and prospects of hotter, drier weather in producing countries is now threatening to exacerbate tight supply.
In the UK, retailers are locking instant coffee jars in security cases to prevent theft. In Japan, one beverage giant suspended the sale of Tropicana orange juice because of a shortage. And in Germany, chocolate and biscuit makers complain of soaring sugar and cocoa costs.
It’s one corner of the commodities market, along with gold, bucking the deflationary trend even as the cost of food staples like bread and pasta eases. This week, robusta prices surged to the highest level since at least 2008, making it more expensive for buyers around the world to get a cheap brew.
Prices of soft commodities have been outperformers this year, surging about 24 per cent while the broader agriculture index eased 3 per cent weighed by falling wheat and corn prices. “Consumers will start to see the cost of bread and pasta falling as the prices of grains have come down, but the last thing to fall will be your sugar and coffee and sweets,” said Kona Haque, head of research at ED&F Man.
Robusta, cocoa beans production fall
Robusta bean production is expected to fall by 5 per cent in Brazil, while in Indonesia, the world’s second-biggest robusta exporter, output is projected to drop by 20 per cent. That combined with shrinking stockpiles in Vietnam, the largest-robusta producer, is likely to keep prices elevated.
For already-suffering chocolate makers, the pain brought by an El Niño could also get worse.
Production of cocoa beans in West Africa — the largest growing region — may fall in the next season by as much as 8 per cent on adverse weather, according to Fuad Mohammed Abubakar, head of Ghana Cocoa Marketing Company. Cocoa prices already surged to the highest in seven years this season following a disappointing harvest in top exporter Ivory Coast that worsened the global deficit.
Beverage industry
But among breakfast items, orange juice has probably seen the highest price increase following a staggering supply shortage caused by disease and hurricane damage in US top producing state Florida. That led futures to rally to a 56-year record, with little relief in sight.
“We don’t expect major supply increases, while demand could slowdown especially in lower-income segments of the population that cannot afford such high prices,” said Marcos Fava Neves, a researcher at University of Sao Paulo.
There are already signs the beverage industry is moving away from orange juice, with bottlers shifting to different fruits or blends. In Japan, it was Kirin Beverage Company Ltd, for example, that recently said it is temporarily suspending the sale of Tropicana orange juice, blaming the tight global supply.
Small luxuries
While supermarket prices may not fall much soon, sales of sweet treats are expected to remain resilient as they are considered small luxuries people are unwilling to give up compared to big ticket purchases like a holiday or a new car, according to ED&F Man’s Haque.
“There is also the whole science about coffee, sugar and cocoa being fairly addictive,” she said, “based on that alone it means consumption will hold up well.”
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.