Source: Times of Malta
By Fiona Galea Debono
The global food chain depends a lot on Russia and Ukraine
Local food manufacturers are feeling the pain of the Ukraine war, with the cost of raw materials increasing by as much as 400 percent.
Manufacturers may not be able to continue absorbing the price hikes and may have to transfer the costs to consumers.
“All hell has broken loose” even for the Twistees and Tastees snack producer, as the conflict rages, affecting the availability and shipment of certain items.
Steve Calleja, managing director of Strand Palace Agencies Ltd, manufacturers and importers of an extensive portfolio of food brands, painted a bleak picture of the war’s impact on the family-run company.
Russia’s invasion of its neighbour a month ago has caused major disruption to world economies, sending commodity prices soaring in a world already hard-hit by the pandemic.
The two warring countries are among the biggest exporters of farm-grown foodstuffs, notably wheat, maize, rapeseed, sunflower seeds and sunflower oil.
Calleja said prices of certain items increased “dramatically” – by over 400 percent – since the start of the year, and quotes were only valid for a few hours.
“We have been absorbing price hikes, but it is getting to a stage where we need to re-evaluate,” he warned.
As to availability, Calleja said certain suppliers had stopped exporting as their stocks were being kept for home consumption.
Apart from Ukraine and Russia, these countries also include Bulgaria and Turkey, he said.
“We are also facing increased problems with shipping, as ports are full of containers that were due to be shipped to Ukraine and Russia and they do not have space to unload other containers, meaning they have to be diverted to other ports,” he said.
Calleja said his company had no option but to increase the prices of imported ready-made goods as they are imposed by suppliers.
Malta’s manufacturing industry is particularly vulnerable to imports of key commodities from Ukraine and Russia, The Malta Chamber of Commerce recently warned.
Food manufacturers are highly exposed to shortages and price hikes due to their concentrated reliance on Ukraine for items like rice starch, which is entirely imported from the war-torn country, while oats, maize starch and crude sunflower-seed oil each make up over 80 percent of total imports.
The popular and staple snacks, Twistees and Tastees, are rice-based and edible vegetable oil is one of the main ingredients.
The products used by Consolidated Biscuit, the cracker, snack and biscuit company, are entirely based on wheat, sugars and oils.
While it does not import these raw materials from Russia and Ukraine, it is not immune to the effects of the conflict, said its general manager Robert Ellul.
These countries are supplying a huge amount of the global food chain, causing a ripple effect, he explained.
The prices of the company’s ingredients had been rising since mid-2020. But when the war broke out last month, “they simply went through the roof”.
And the food industry has not yet seen the worst of it, Ellul warned.
The company was already paying 35 percent more in November, but “everything is shooting up and keeps on rising,” he said.
Corn and vegetable oil have more than doubled in price, compared to a year ago.
The price of cartons used for storage has increased “phenomenally” – by more than 30 percent – over last year.
He said that globally, certain markets have closed down their exports to keep them to themselves, creating more supply issues that continue to drive up prices.
The huge demand compounds the situation, with companies all over trying to secure supplies in an attempt to cover the next few months for some peace of mind, creating a run on raw materials.
The company’s own sale of dry foods, such as biscuits and galletti, soared in February, he said, adding that bread-replacement products, which can keep for months, are what consumers stock up on in difficult times.
For nearly three weeks, suppliers did not even provide quotations for their products, as the war brought everything to a standstill.
“International suppliers cannot commit because they do know what is going to happen with the next harvest and the market is too volatile.”
What will happen next is a question mark, Ellul said.
“If the warring countries significantly reduce the plantation of grain and oilseeds in the coming weeks, the situation is going to get worse.”
Consolidated Biscuit, the maker of Devon biscuits, is encountering manufacturing problem
The biscuit company, which includes the flagship Devon brand within its portfolio that it distributes widely, would “keep moving forward” despite the looming risk of shortages and the inability to manufacture its products.
In the face of no other alternatives, food manufacturers would have to look beyond buying their supply from free-trade zones and consider resorting to countries where they had to pay duty.
This would continue to compound the problem, Ellul said, adding to the mix the fact that the island had to ship everything in and out and that the supply chain has been disrupted, with huge delays in lead time of deliveries, further exacerbating the situation.
This week, France called for an urgent international food security plan over the Ukraine war to avert “inevitable famine” in vulnerable countries within a year.
President Emanuel Macron urged Russia to show responsibility by allowing farm production in Ukraine as a major cereal grain exporter.
The UN says global grain prices have already risen past the level they were at during the Arab Spring uprisings in 2011.
It warned the conflict could cause a “hurricane of hunger and a meltdown of the global food system”.