It has been more than a month since the outbreak of armed conflict in the Sudan. According to Reuters, the armed conflict in Sudan has not only caused a humanitarian crisis, but also unexpectedly caused anxiety among global carbonated beverage manufacturers.
Gum arabic, which is abundant in Sudan, is a key material for the manufacture of carbonated beverages.
It is reported that Sudan's gum arabic production accounts for about 70% of the world, and if the export of gum arabic is interrupted, carbonated beverages including cola, sprite, Fanta, etc. will face the risk of supply interruption.
According to Red Star News reported on May 24, due to the unstable supply of raw materials, Coca-Cola series products in the Beijing market Youbao unmanned retail channel has been out of stock for a period of time.
There are also a number of media reports that the price of Coca-Cola-related products in Chengdu, Beijing and other places has increased, involving multiple channels, and some buyers in Sichuan said that the Coca-Cola factory increased the price last month, and the price of 24 bottles of 300ml Coca-Cola rose by 4 yuan.
The supply of important raw materials may be cut off
Recently, news such as "Coca-Cola price increase" and "Coca-Cola farewell to the 3.5 yuan era" has spread rapidly on the Internet and caused a lot of discussion.
Behind this wave of doubts about price increases, the world's major carbonated beverage producers may face the risk of gum arabic supply in a few months.
It is understood that gum arabic is mainly used as a stabilizer in the food industry, which can make ingredients such as food flavor, food coloring, sucrose "harmonious coexistence", and can also make carbon dioxide in soda more stable in the liquid.
According to Reuters, the global annual output of gum arabic is about 120,000 tons, worth 1.1 billion US dollars, most of them are produced in the "tree tape" across Africa, the main producing countries include Ethiopia, Chad, Eritrea, etc., of which Sudan's gum arabic is of better quality, accounting for about 70% of the total global exports.
Although other additives such as gelatin and carrageenan have appeared in the food industry, for companies of the size of Coca-Cola and PepsiCo, changing additives means a major change in formulation and production lines.
The huge cost of transforming the production line is secondary, and the taste change that may be brought about by the change of formula is a headache for the giant. The question on the Internet about which brand of cola is better often attracts the passion of the "red and blue party", for soda lovers, whether there is "that taste" is the key factor in choosing a product.
According to the British supermarket chain giant Aldi, although many products are not clearly indicated in the ingredient list, they actually use gum arabic. In addition to Coke, Nestlé, Unilever, M&; M, Colgate and other brands of products should also add gum arabic.
Exporters and industry sources said companies that rely on gum arabic such as Coca-Cola and PepsiCo have long stockpiled gum arabic due to concerns about the risks posed by the ongoing fighting in Sudan, and some companies will maintain storage for three to six months to avoid supply shortages. However, the global consumption of carbonated beverages is huge, and once the inventory is exhausted, it may impact the global carbonated beverage production line.
Conflict affects exports
Gum arabic is essential to the global food and beverage, pharmaceutical and cosmetics industries, and was excluded even during the early years of U.S. economic sanctions against Sudan.
The US financial media pointed out that due to the fact that international "middlemen" generally have gum arabic stockpiling, terminal manufacturers will not immediately run out of inventory. But if the domestic situation in Sudan does not stabilize soon, the price of gum arabic may rise sharply, and cost pressure will be transmitted from the upstream of raw materials to the price of consumer goods.
Past sources show that Sudan's past conflicts have mostly been concentrated in the remote areas of Darfur (editor's note: the region is located in western Sudan, bordering Central Africa, Chad and South Sudan, which is a conflict-prone zone), and this conflict has occurred in and around the capital Khartoum. Most of Sudan's gum arabic storage facilities are located in Khartoum and the neighboring city of Omdurman.
In addition, gum arabic from Umrawaba, Northern Kordofan, and Damazine, Blue Nile State, cannot be exported to Khartoum and Port Sudan on the Red Sea coast because transport routes pass through conflict-breaking areas. Awad Musa, secretary general of the Sudanese Chamber of Shipping, said gum arabic storage facilities in Port Sudan's main export hub were empty.
Ibrahim Abubaker, chairman of Quality House, which exports gum arabic to Germany, said inventory products were either stuck in warehouses or stuck at production sites. "Due to clashes between the Sudanese army and the paramilitary Rapid Support Force, more than 50,000 tons (of gum), about half of Sudan's annual production, cannot be exported".
"The international price of gum arabic will rise accordingly." Moussa said.
According to Arab News, exports from Darfur and Kordofan via Khartoum, particularly gum arabic, have been severely affected since the beginning of the conflict. An estimated 50,000 Sudanese (about 11 per cent of the country's population) depend directly or indirectly on the income generated from the production of this valuable resource.
Akol Miyen Kuol, a regional expert for South Sudan, said: "At the local and national levels, if the ongoing war in Sudan does not stop quickly, it will seriously affect the income of those who collect gum arabic and the income of Sudan in general." ”
Multiple factors promote price increases
Although there is no official price adjustment information disclosed, it is not far from the last round of price adjustment of the two cola companies.
In November 2021, Coca-Cola officially announced a price adjustment, including Coca-Cola, Sprite, Fanta and other products retail price increase, of which the classic 500ml bottle of Coke, from 3 yuan to 3.5 yuan; at the end of March last year, PepsiCo officially issued a price adjustment notice, from April 1, 2022, the price of 500ml bottled Pepsi (original/sugar-free), Meinenda and Seven Joy all increased to 3.5 yuan / bottle, and Coca-Cola maintained the same price. The reasons given by the two giants are to "cope with rising costs".
In fact, gum arabic is not the only raw material for carbonated drinks such as cola, and the use of additives such as water, white sugar, and caffeine brings different flavors to cola, which also affects its cost price.
Affected by the downward revision of production forecasts or actual output less than expected in sugar-producing countries such as India, the slow harvest progress of sugarcane crops in Brazil, and the increase in demand for sugarcane-to-ethanol caused by rising international crude oil prices, the price of sugar has shown a sustained and rapid upward trend recently. According to data released by the Food and Agriculture Organization of the United Nations on May 5, the FAO Sugar Price Index averaged 149.4 points in April, up 22.4 points (17.6 percent) from the previous month, rising for the third consecutive month and the highest since October 2011.
Some insiders said that compared with the price increase of a single raw material, the high cost of each supply chain under the background of inflation will also trigger the actual price increase of cola.
On April 24, Coca-Cola released its financial report for the first quarter of 2023. It mentioned that global prices increased by an average of 10% in the first quarter, and European prices increased by more than 20%. Coca-Cola said inflation had led to an increase in transportation and raw material costs.
However, John Murphy, Coca-Cola's president and chief financial officer, said the company expects price increases to slow as inflation eases in some areas, such as oil spot prices and freight rates. "In the second half of the year, our expectation is that inflation will slow in most markets, which will lead to a 'more normal' pricing cycle compared to the past 12 to 18 months."
In addition, food and daily chemical companies, including PepsiCo and Unilever, have also raised prices in recent quarters to cope with rising costs.
This article is from the International Finance News