By JONATHAN BERR, who has written for national media outlets for more than 15 years
Tim Jones has already got his eye on next year's Halloween celebration. He has little choice.
As a global supply chain commodity manager for Just Born Inc., best known as the maker of Peeps, Jones oversees the purchases of sugar, peanuts and other raw materials for the family-owned Bethlehem, Pa., company.
As sugar prices have soared, however, Jones has been forced to secure commodities for longer periods than before, and that's why he has contracts in place already for 2012.
"I thought it was a good idea to hedge out further than we had done," Jones said in an interview with Risk & Insurance®, adding that Just Born may run the risk of paying higher costs if prices fall but "that's kind of the risk you have to take."
Consumers are already feeling the impact of rising prices. Hershey announced a price increase earlier this year of nearly 10 percent, and worries about high commodity prices are depressing the stock of the second-largest chocolate maker. Just Born has also raised prices.
Indeed, rising prices for sugar in particular have left a sour taste with many candy makers. Prices are at record highs.
Prices for the sweet stuff have climbed more than 25 percent over the past three years, according to the National Confectioners Association.
A kilo of sugar now costs more than $50.00. Just a few years ago it was under $35.00 a kilo, and economists expect 2011 sugar prices to be on average 9 percent above 2010 levels.
Even as candy manufacturers fight to end quotas on sugar imports, which tend to raise prices, the manufacturers remain in a bind.
Consolidation among sugar refiners has meant less competition and put upward pressure on prices, and many small players like Just Born don't engage in commodities swaps to mitigate their risk.
Jones, whose company has also faced skyrocketing costs for peanuts and corn syrup, is studying whether his company should do just that though.
"The markets for commodities are all on the way up," Jones said, adding that he will be modeling trades over the next few months to see if the company would be better off.
Not surprisingly, candy makers have always been vigilant about the costs of commodities.
"We were always trying to drive efficiencies in our operations to minimize significant price increases," said former M&M Mars executive Todd Macumber, now the president of the risk services division for HUB International Ltd.
Another area of concern for Halloween candy manufacturers is food allergens. This year, more manufacturers are adding manufacturing information to fun-sized candies, even though it is not required by the Food and Drug Administration, according to the National Confectioners Association.
Allergens are a big concern for candy makers since many of their products contain milk and peanuts. A recent scientific study found that food allergies in children are more common and more deadly than people expected.
Food defense and food security -- which includes making sure that ingredients are not contaminated with allergens -- is one of the industry's biggest challenges.
October 31, 2011
Copyright 2011© LRP Publications