CAOBISCO Press Release

Increases in raw material prices in the food sector will lead to higher food prices for consumers

Added: 17 July 2007

The recent increase in prices of raw materials &ndash such as dairy products, cereals, vegetable oils, cocoa and hazelnuts - is a major concern for the chocolate, biscuits and confectionery industry of the EU, as this covers many of the main raw materials used by our industry.

Dairy products supply is very tight due to consistent reduction of the herd numbers in the EU and a parallel growth in world demand. Milk powder prices increased by about 75% in the last year concentrated butter currently costs up to 70% more than last year, and stocks are exhausted.

Prices of cereals and vegetable oils are much higher. Cereals and wheat prices increased by 40% from last year and the price of vegetable oils has increased by up to 60% in the last few years.

The price of cocoa beans increased by more than 40 % from the beginning of this year, principally due to climatic conditions and changing patterns in global demand for cocoa. Moreover, egg prices are 30 % higher and the price of hazelnuts is expected to grow due to speculation.

The OECD-FAO Agricultural Outlook 2007-2016 says, &ldquo temporary factors such as droughts in wheat &ndash growing regions and low stocks explain in large measure the recent hikes in farm commodity prices. But when the focus turns to the longer term, structural changes are underway which could well maintain relatively high prices for many agricultural products over the coming decade&rdquo .

Our expectation is that raw material prices will continue to grow: tight supply and demand of these non-substitutable raw materials will create major cost pressures on our finished products. The competitiveness of our business sectors and the food industry, generally, is being dramatically reduced due to the high cost of our raw materials and strict EU food safety standards, which have sourcing implications.

EU policies are further restricting the opportunities to source products at competitive conditions: cereals and vegetable oils are impacted by a distortive biofuels policy, quotas and import restrictions are the main pressure on the dairy sector. This very inflexible system seems to be leaving little ground for reducing short- term price pressures and present long- term challenges for the food industry.

ENDS