**Title: Rising Sugar and Cocoa Prices Threaten Sweets Lovers’ Wallets as Extreme Weather Affects Production**
**Introduction**
– Sharp increases in sugar and cocoa prices due to extreme weather conditions are expected to impact the wallets of sweets lovers.
– Despite a general easing of food inflation, the prices of sugar and cocoa have reached their highest levels in years, leading to potential price hikes in hot drinks and confectionery.
– Factors such as climate change, El Niño, and supply concerns have contributed to the rise in prices of these essential ingredients.
– Food manufacturers are likely to pass on the cost increases, potentially resulting in shrinkage of product sizes and ingredient substitutions to reduce expenses.
**Factors Driving Price Increases**
– The El Niño sea temperature phenomenon and climate change-induced rising temperatures have caused extreme heat in parts of Asia and reduced rainfall in West Africa, threatening sugar, cocoa, and coffee crops.
– Analysts warn of a potential supply deficit in 2023-24, which is driving up prices.
– Unusually dry weather in the southern states of Karnataka and Maharashtra in India, the world’s largest sugar producer, has significantly impacted sugar production, leading to a projected deficit of 4 million tonnes in the upcoming season.
– Ivory Coast, which produces 70% of the world’s cocoa beans, is expecting a mediocre harvest due to excessive rainfall, potentially reducing its production next season by around 15%.
– The uncertain climate has also affected the production of robusta coffee in Vietnam and Indonesia, leading to concerns about reduced crop yields.
**Impact on Consumers and Manufacturers**
– Food manufacturers have indicated that they will pass on the increased costs to consumers, leading to higher prices for products containing sugar, cocoa, and coffee.
– In the UK, sweets prices have already risen by 15% in the year up to June, while in the US, sweets prices have risen by 9.4% in the year up to August.
– Despite the price increases, sales of sweets and chocolates have remained resilient, as consumers still view these treats as affordable luxuries.
– Chocolate makers, such as Mondelez and Hershey, have raised their profit forecasts for the year due to the ongoing demand for chocolates.
– However, manufacturers are also implementing strategies to mitigate rising costs, such as reducing product sizes, substituting ingredients, or tweaking formulations.
– For example, French supermarket chain Carrefour has placed stickers on products with reduced sizes to inform consumers of “shrinkflation.”
**Global Food System Vulnerability**
– The rising costs of essential ingredients, such as sugar, cocoa, and coffee, highlight the vulnerability of the global food system.
– Soaring rice prices due to El Niño and bad weather conditions could further increase the costs of other commodities and trigger inflation in Asian countries.
– Experts emphasize that the current El Niño event is occurring in a world significantly warmer than in the past, bringing new challenges and uncertainties to agricultural commodity markets.
– The impact of climate change on food production and pricing underscores the need for sustainable practices and adaptation strategies in the agricultural sector.
**Conclusion**
– As extreme weather conditions hamper sugar, cocoa, and coffee production, prices are expected to rise, affecting consumers’ budgets.
– Food manufacturers, facing higher input costs, are likely to pass on these increases to consumers through price hikes.
– To mitigate rising costs, manufacturers may resort to reducing product sizes and substituting ingredients.
– The vulnerability of the global food system to climate change highlights the need for sustainable practices and adaptation strategies in the agricultural sector.
*Summary: The sharp rise in sugar and cocoa prices due to extreme weather conditions is expected to impact consumers’ wallets. Factors such as climate change and supply concerns have led to a rise in prices, threatening the production of hot drinks and confectionery. While manufacturers plan to pass on these costs to consumers, they may also reduce product sizes and substitute ingredients to mitigate rising expenses. This situation emphasizes the vulnerability of the global food system and the need for sustainable practices in the agricultural sector.*
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Sharp rises in sugar and cocoa prices are set to hit sweets lovers’ wallets as extreme weather hampers production, even as broader measures of food inflation ease.
This month sugar prices hit its highest level in 12 years and cocoa futures hit a four-decade high, in a move that analysts say is likely to result in higher prices of hot drinks and confectionery.
Chocolate producers and processors have been “praying for prices to come down all year and they just haven’t,” said Andrew Moriarty, head of price reporting at Mintec. Instead, they are set to rise further, he said: “We can expect that costs will soon start to be passed on to consumers.”
Consumers We can also expect further “inflation contraction” in product sizes and ingredient substitution to reduce costs, he added.
The price increases have been driven by supply concerns as the El Niño sea temperature phenomenon, coupled with rising temperatures resulting from climate change, brings extreme heat to parts of Asia and decreased rainfall in the West Africa, threatening sugar, cocoa and coffee crops.
“What really drives these price increases is the prospect of a [supply] deficit in 2023-24,” said John Stansfield, senior sugar analyst at DNEXT.
Food manufacturers have signaled they will pass on the latest cost increases. François-Xavier Roger, chief financial officer of Nestlé, the world’s largest food maker, told investors this month that the company does not plan to raise prices much higher except “on a selective basis for some categories where we still see a certain inflation of production costs, as for cocoa, for sugar, for robusta, for coffee”.
In the UK, sweets prices rose 15% in the year to June, while in the US sweets prices rose 9.4% in the year to August.
Despite this, sales have proven resilient. Analysts said that while shoppers have cut back on other spending, they tend to view treats such as sweets as an affordable luxury.
This turned out to be a boon for manufacturers. Cadbury maker Mondelez and Hershey have both raised their profit forecasts for the year.
“The thing about cocoa and confectionery is that it’s a very resilient market,” said Bruno Monteyne, an analyst at Bernstein. “People still eat chocolate.”
Sugar prices rose after unusually dry weather in the southern states of Karnataka and Maharashtra hit production in India, the world’s largest sugar producer. Analysts expect a production deficit of 4 million tonnes in the 2023-24 season compared to the 32.8 million tonnes produced a year earlier.
India has limited exports to 6.1 million tonnes for the 2022-23 season, down from 11 million the previous year, and is considering a total export ban starting in October, which would further reduce supplies, Stansfield said.
Upcoming elections in five states and national elections next year make export cuts more likely, he added, given that “sugar is extremely political in India.”
Sugar prices have fallen slightly from a peak earlier this month after a bumper corn crop in Brazil prompted ethanol producers to switch to wheat, freeing up sugar supplies.
However, cocoa prices have a more direct impact on consumer products than sugar, said Andy Duff, global sugar strategist at Rabobank.
Ivory Coast, which produces 70% of the world’s cocoa beans, expects a “mediocre harvest”, said Yves Brahima Koné, head of the National Coffee and Cocoa Council, blaming “too much rain and not enough sun”.
Analysts expect the West African country’s production next season to fall by around 15%.
With prices already high over the past 18 months, chocolate makers have limited their purchases, Moriarty said.
“The entire industry is short on coverage,” he said, adding that some manufacturers only have supplies through the end of the year. As a result, buyers are now forced to take the hit and buy at higher prices, Moriarty said.
In addition to raising prices, producers are also reducing products to mitigate rising costs, said Paul Joules, cocoa analyst at Rabobank.
This month French supermarket chain Carrefour placed stickers on products whose sizes had been reduced, including Unilever’s Viennetta ice cream and Lindt chocolate, warning consumers of “shrinkflation”.
Chocolate makers also offset rising cocoa prices by tweaking other ingredients to reduce costs, for example by increasing palm oil content or using cheap milk powder instead of anhydrous milk fat, Joules said.
The erratic climate of recent months has also put a strain on the production of robusta coffee in Vietnam and Indonesia, the second and third largest producers in the world. If El Niño creates a prolonged dry spell, this could further reduce crop yields.
This is bad news for espresso drinkers, especially in Italy, where robusta beans dominate. Instant coffee drinkers could take a bigger hit, Moriarty said. The product uses robusta and is energy intensive to produce, so it is affected by high energy prices.
While chocolate and coffee seem like luxury goods, the rising costs of the underlying goods highlight the fragility of the global food system, said Professor Tim Benton, a food security expert at Chatham House.
Soaring rice prices, which have reached the highest levels since 2008 as El Niño and bad weather threatened crops, could push up costs of other commodities and spur Asian inflation, analysts warned this month. HSBC.
More aggressive, broad-based food inflation could easily return, Benton said. Agricultural commodity markets were complacent about El Niño risks, he added, “but we’ve never had an El Niño in a world as warm as it is today.”
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