Big Interview
such as bakeries and hotels, who depend on sugar as a crucial ingredient are suffering diminishing profit margins as they battle to absorb the increasing prices without passing them on to their clients.
Q: With El Niño causing dry weather in key regions, how do you foresee the future trajectory of sugar prices and the potential effects on confectionery manufacturers? With El Niño triggering a supply shortfall of sugar, an upward pressure on the commodity’s price is anticipated during H2 2023 and H1 2024. This shortfall is also likely to lead to the sugar market witnessing a supply deficit for the second year in a row. Amid this probable drop in production, governments of
major sugar-producing countries have taken strict actions, such as rationing and restricting exports, to protect domestic supplies. For example, India – the second largest sugar producer in the world – reduced sugar exports by 45% year- on-year (YoY) in the marketing year 2022-23. As per the initial estimates given by Indian Sugar Mills
Association (ISMA), the country is likely to produce 31.7 million tonnes of sugar during the marketing year 2023-24 – down 3.4% year-on-year (YoY) and 1.1% lower than the past five-year average. The monsoon rain in India from June to August was 10% below average, raising fears of a likely decline in the country’s sugar production, which might prompt the government to impose an exports ban. The global sugar market will likely see a deficit of 5–6
million tonnes in the marketing year 2023-24 due to exports curbed by India and reduced acreage in Thailand, as farmers may increase sowing of more profitable cassava crops. These short- to medium-term supply constraints are
anticipated to keep sugar prices high, increasing input costs when it comes to the manufacturing of confectionery products.
Q: Given the consecutive years of supply deficits in the sugar market, what strategies can confectionery producers adopt to mitigate the impact of rising sugar prices on their products? To mitigate the impact of sugarflation, we have seen confectionery producers transferring the burden of increased sugar input costs to consumers. While this has resulted in CPG companies experiencing growth in their revenue, this has almost entirely come via price hikes, and not an increase in volume sold. This can be seen with revenue growth in the first quarter of 2023, which was largely driven by price increases. In fact, some confectionery manufacturers even showed negative volume growth. For example, Nestle’s organic growth of 9.3% for the first quarter of the year was due to price growth of 9.8%, with the organisation’s sales volume declining by 0.5% during this period. In terms of a solution which does not affect consumer prices, confectionery manufacturers ought to actively evaluate multiple suppliers and support their critical vendors. By identifying suppliers in several different geographies, this reduces the dependence on a single provider and territory, especially if a manufacturer is purchasing from areas where output is declining. Elsewhere, businesses should conduct a comprehensive
KennedysConfection.com
“Confectionery manufacturers should consider using artificial intelligence (AI) as part of their business strategies to ensure
profitability and maintain a regular supply of reasonably priced products for consumers”
review on exposure to Indian and Thai suppliers, to ensure the fall in production in these nations doesn’t have a major impact on their operations. Mapping suppliers on a tiered basis will also help confectionery producers get a clearer picture of the supply chain risks.
Q: The high cocoa prices are a concern for the industry. Could you delve into the factors contributing to these elevated prices, particularly the situation in Ivory Coast and Ghana? In July, London cocoa prices touched £2,858/tonne, representing a 46-year high. A major factor in contributing to these elevated prices is tight cocoa supplies in Ghana and Ivory Coast – two of the world’s leading cocoa producers. Abundant rains in certain regions of West Africa from
May to July resulted in an outbreak of the black pod disease in cocoa plantations, negatively impacting crop quality and production. The heavy rainfall has also created logistical challenges, obstructing roads and preventing goods from reaching ports in the region. In fact, cocoa arrivals at ports in Ivory Coast fell by 2.9% YoY from October 2022 to 30th July 2023. What’s more, the quality of cocoa beans has been impacted
by the continued sanctions imposed on Russia – the largest fertiliser exporter globally. The lack of availability of fertilisers and pesticides has affected crop quality, limiting cocoa production.
Q: The black pod disease outbreak in cocoa plantations has affected crop quality and production. How are these challenges compounding the existing supply issues and cocoa price increases? Supply from West Africa has been dwindling since the start of 2023 due to hot and dry weather in the first quarter of 2023. Rainfall in May brought some relief, but this also brought
on logistical problems, adding to the outbreak of the swollen shoot virus in Ivory Coast and the black pod disease in Ghana. As a result, despite earlier expectations of an increase, Ghana’s cocoa harvest is now anticipated to decline annually in the marketing year 2023-24. Lower-than-expected production has prompted Ghana
to postpone Q3 2023 shipment to the next season, while Ivory Coast halted forward sales of cocoa for exports during the marketing year 2023-24.
Kennedy’s Confection August/September 2023 11
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