Confectionery industry in 2011: Greatly increased raw material prices have a sustained negative impact on business results and development opportunities
The substantial price increases for raw materials and the fierce competition in the food retail trade had a negative impact on the profitability of the German confectionery industry, which includes a large proportion of small and medium-sized businesses. That was one of the key points contained in an announcement made by the Association of the German Confectionery Industry (BDSI), in the run-up to the 42nd International Sweets and Biscuits Fair (ISM) in Cologne. In many cases, the higher costs could not be fully passed on or only with a delay. The development of raw materials prices was particularly dramatic for sugar, flour, almonds and hazelnuts. In addition, the price of butter and of vegetable oils and fats remained at a high level in 2011. Luckily, supply security returned to the cocoa market after the EU lifted a temporary embargo against the Ivory Coast. The price of packaging rose as well, due to the high price of oil. Speculation regarding food raw materials on the commodity exchanges was yet another cause of the price increases. These price increases were drastic in some cases, and the BDSI strongly condemns such speculation.
However, the primary reason why 2011 will be a year to remember for the sector is that something happened which probably no one thought possible: the confectionery industry's main raw material - sugar - became scarce in Europe despite a record sugar beet harvest. The reason for this disturbing development is that the intensively regulated and inflexible European quota system creates artificial bottlenecks for sugar for food production ("quota sugar"), thus driving up prices. Due to the EU's quota system, food manufacturers cannot use non-quota sugar, which is currently being produced in huge amounts as a result of the good harvest. So instead of being available for food production, this sugar is flowing to the chemical industry, is used to produce bioethanol, or is simply exported. The confectionery industry expects the quota system to be abolished in 2015, as the European Commission has recommended.
The European Commission is currently using emergency measures to try to stabilize the European sugar market. However, these methods seem paradoxical. "For example, it is downright absurd that non-quota sugar is exported to the global market while other sugar is simultaneously being imported to Europe in order to offset the scarcity of this raw material for food production," said Tobias Bachmüller, Deputy Chairman of the BDSI and Chairman of the International Sweets and Biscuits Fair Working Group (AISM). "If no quota system existed, the food industry could directly procure the sugar it needs from the large amounts that are available in Europe."
Business development of the confectionery industry in 2011
The BDSI estimates that the approximately 220 industrial manufacturers of confectionery and snack items in Germany were able to increase production volume by 1.4% in 2011 to around 3.78 million tons compared to 2010. Production turnover increased by about 2.1% to around ¤12.88 billion. The BDSI's estimates are based on the official figures provided by the German Federal Statistical Office.
"After a very favourable first half of the year for our manufacturers, the business situation deteriorated in the second half of 2011. The reasons for this included a decline in exports, as well as mild weather in autumn and during the run-up to Christmas, which reduced people's appetite for confectionery just at the time when the sector generally does its most important seasonal business. This once again demonstrated that the confectionery industry is more dependent on the weather than on the development of the economy," explained Bachmüller.
Domestic demand stagnated in 2011. The amount of confectionery sold declined by about 0.4% to just under 2.6 million tons, while turnover rose by 0.4% in Germany to around ¤9.3 billion.
Although the export business continued to do well overall in 2011, it weakened as the year progressed. Estimates put the total amount of confectionery exported at 1.74 million tons, representing an increase of 2.3% on the previous year. In 2011 the turnover from exports rose by approximately 5.4% to around ¤5.67 billion. Since around 46% of the goods was sent abroad, almost half of the confectionery produced in Germany was destined for export. About 85% of the confectionery exported is shipped to other member states of the European Union. The remaining 15% is exported outside the EU, in particular to the USA, Switzerland, Russia and Australia.
The size of the German confectionery industry's workforce remained unchanged from the previous year. The confectionery sector was the third-largest segment of the German food industry in 2011, employing around 50,000 men and women. It thus makes an important contribution to maintaining Germany's overall economic stability.
Outlook for 2012
The confectionery industry continues to face great challenges in 2012. The manufacturers' biggest concerns continue to be the availability of sufficient amounts of certain raw materials and the large increases in raw material prices. As a result, strategic raw material purchases have become extremely important for the companies.
Further risks for the confectionery industry are the future development of the euro crisis and the uncertainty on the international financial markets. In addition, the BDSI considers future energy price developments to be another burden that could increasingly impair the competitiveness of Germany's confectionery manufacturers.
The industry remains optimistic, however, due in particular to the steady stream of innovations. What's more, the sector expects the upcoming International Sweets and Biscuits Fair (ISM) to give it a strong boost for the current business year.
Different developments in the individual product groups
The BDSI estimates that the production of chocolate products rose slightly in 2011. This was due in part to the cool and rainy summer of 2011, which largely prevented the usual drop in turnover for chocolate products caused by warm temperatures. Unfortunately, the Christmas business failed to live up to expectations due to the mild weather. A total of 1.02 million tons of chocolate products were produced in Germany in 2011, which corresponds to an increase of 0.5%. The growth was slightly higher in terms of value, which rose by 0.7% to ¤4.97 billion.
Sugar confectionery experienced a positive development in 2011. Compared to 2010, production volume rose by 3.6% to 547,000 tons. The increase in value was very similar, with the production value rising by 4.0% to ¤1.75 billion. Exports did especially well, rising by 6.0% to 201,000 tons in terms of volume and by 6.2% to ¤565 million in terms of value.
Fine baked goods
Business was difficult for the manufacturers of fine baked goods last year. This was particularly the case with seasonal products such as gingerbread and Spekulatius biscuits. In terms of volume, the production of fine baked goods is estimated to have declined by 1.3% to 750,000 tons. Production value in this segment fell by 0.7% to ¤2.3 billion. This decline was primarily caused by the very mild temperatures in October and November 2011, which contrasted sharply with the cold and early winter of 2010.
The BDSI estimates that the snack item business remained largely unchanged compared to the previous year. The production value in this segment rose by 1.6% to ¤787 million. In terms of volume, the production output almost matched the previous year's amount, declining only slightly by 0.5% to about 260,000 tons.
Chewing gum continued to be very popular in 2011, with domestic turnover (at consumer prices) amounting to around ¤636 million