Big Interview
“The quality of cocoa beans has been impacted by the continued sanctions imposed on Russia – the largest fertiliser exporter globally”
El Niño weather risks could also hinder production in
these regions, and the deficit for the current and the next cocoa seasons could be larger than anticipated, keeping prices high.
Q: What steps could cocoa producers and chocolate manufacturers take to safeguard their supply chains against disruptions caused by factors like disease outbreaks and adverse weather conditions? In order to prevent supply chain disruptions during such events, cocoa producers and chocolate manufacturers must adopt a multipronged strategy to address low production and exports. Firstly, supply chain teams should identify and evaluate multiple suppliers and support their critical vendors. They should avoid being too reliant on a single provider and territory, particularly when a manufacturer is purchasing from areas where cocoa output is declining. Secondly, it is imperative to monitor disease outbreaks
and adverse weather conditions as they evolve. Looking at El Niño, businesses must continue tracking its progress and frequently assess the potential consequences the weather event may have on key geographies and suppliers. Lastly, supply chain professionals ought to improve
inventory and labour planning to mitigate the impact of potential disease- and weather-related disruptions. This requires carrying out detailed assessments to gauge the necessary levels of inventory, as well as ensuring that the required inventories are in place in the event supply chains are disrupted due to low production from exporting regions.
Q: As a commodity specialist, could you elaborate on the relationship between macroclimate phenomena like El Niño and the trends in both sugar and cocoa markets? Macroclimate phenomena tend to have a negative effect on a variety of crops, but El Niño has had a pronounced impact on sugar and cocoa markets due to the resulting weather conditions in major sugar- and cocoa-producing regions. For example, hot and dry conditions in parts of West Africa is projected to reduce cocoa output. Whereas, in Brazil, El Niño is set to cause heavy rainfall, thereby delaying the sugarcane crop harvest. This will contribute to an increase in sugar prices globally. The intensity of the ongoing El Niño dry season in other
regions this year could result in a 10–15% reduction in sugarcane yield globally. It is likely to cause India and Thailand to experience hotter- and drier-than-average weather, leading to severe drought which will reduce
14 Kennedy’s Confection August/September 2023
sugarcane production. During previous iterations of El Niño, the weather
phenomenon has had a significant impact on both the sugar and cocoa markets, negatively affecting output. Prior to this year, the most recent occurrence of El Niño was in 2015, when heavy rainfall in Brazil disrupted the sugarcane harvest and decreased sugar output. Due to the wet weather, sugarcane processing in May 2015 was 26% lower compared to May 2014, while sugar and ethanol production declined by 36% and 22% respectively. This led to the sugar market witnessing a deficit of 4.7 million metric tonnes in 2015. Meanwhile cocoa prices rallied to 12-year highs in 2016 after the weather event caused a drought in key producing countries, hampering global production.
Q: Given your expertise, how do you see the interaction between the ongoing sugar supply deficit and the challenges in cocoa production affecting the broader confectionery industry and consumer prices? From chocolate bars to a packet of sweets, both sugar and cocoa comprise key ingredients in the production of confectionery products. Therefore, the commodity price increases will impact input costs of confectionery products, leading to a rise in the cost of the product for end-consumers. For example, sugar accounts for approximately 7% of the total raw material cost in a chocolate muffin, with cocoa’s cost share estimated to be around 20%. As such, the product’s price is likely to increase considerably due to the rising cost of the key ingredients used to make it. With the occurrence of El Niño likely leading to a much
lower supply of key food ingredients, prices are due to increase during the last quarter of 2023 and the first quarter of 2024. This means that bakery and confectionery products, which require sugar and cocoa, are set to bear the brunt of low production and firm prices of ingredients.
Q: Are there any innovative approaches or best practices that food producers can adopt to manage cost fluctuations in their supply chains, specifically when dealing with the current situation of rising input costs? One innovative approach that food producers have started to adopt in order to deal with rising input costs is reducing how much of a commodity they use when it comes to making their products. Taking sugar as an example, firms are actively working
on technologies that reduce sugar content in ingredients. This can be seen with Nestle recently introducing a sugar reduction technology which, through an enzymatic process, reduces intrinsic sugar in malt, milk and fruit juice ingredients by up to 30%.
Q: In terms of practical solutions, can you provide insights into how confectionery manufacturers can adapt their business strategies to maintain profitability and ensure a steady supply of affordable products for consumers during times of ingredient price increases? 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.
KennedysConfection.com
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