Spreads: Functional or Fatty?

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Spend Matters welcomes this guest post from Jara Zicha and Nick Peksa, market analysts at Mintec.

Breakfast has been touted for many years as the most important meal of the day; however, times are changing in this fast moving world of marketing and grab-and-go. Today’s buzzwords are “fast and functional,” so what is it that can possibly tick these boxes? Chocolate on bread!

A generic chocolate spread contains five key ingredients; sugar, palm oil, hazelnuts, semi-skimmed milk powder (SMP) and cocoa powder. The good news is that the price of spread is dropping. This seems slightly counterintuitive when you consider there have been global price increases in both sugar and palm oil over the last two years. But in reality, sugar and fat are bulking agents and are the cheapest constituents of the product, so the more that can be crammed into a jar, the more money the manufacturer can make.

For those people who like a few facts, chocolate spread has around the same fat content as a budget margarine (50%). So, I would have to congratulate the marketers out there on the excellent job they have done on persuading the consumer that a nutty morning spread is a good start to the day.

Anyway, back to pricing: Palm oil has seen its prices rising 1% year-over-year, but the situation in the market was more alarming at the beginning of the year, when prices were up 25% compared with same period a year ago. The increase in palm oil prices has been attributed to El Niño, causing drought in Southeast Asia, the main supplier of palm oil to global markets. Sugar is also up, by 19% y-o-y, on concerns over supply deficit in 2016/17.

Hazelnuts, although being used at a much smaller proportion (14%) than sugar and oil, are the main cost driver in the production of hazelnut chocolate spread, as they are around twenty times pricier than sugar. In 2016, the average annual price for hazelnuts was pegged at $8.30 per kilogram, in comparison with $0.40 per kilogram for sugar and $0.70 per kg for palm oil.

Turkish hazelnut prices have fallen by some 13% y-o-y, supported by large carry-over stock from the previous 2015/16 season and a strong depreciation of Turkish Lira (20%). Cocoa powder (7%) is also down by 26% y-o-y, pressured by falling cocoa bean prices due to higher cocoa production in Ivory Coast and Ghana.

Without taking into consideration, marketing, overheads, rising fuel prices and increased shipping costs, I would estimate that the price of our favourite generic fast and functional chocolate hazelnut spread should decrease, perhaps by around 7%. And knowing how much sugar and fat it contains, I would recommend that after breakfast you go for a fast and furious gym session to burn off all those excess calories.

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