Steep increases in sugar and cocoa prices are expected to impact the wallets of sweet treat lovers due to extreme weather conditions affecting production. Although broader measures of food inflation have started to ease, sugar prices have reached their highest level in 12 years and cocoa futures have hit a four-decade high. Analysts predict that these price hikes will lead to higher prices for hot drinks and confectionery. Chocolate manufacturers and processors have been hoping for prices to decrease but instead they are set to rise further, meaning that costs will have to be passed on to consumers. This could result in “shrinkflation” where product sizes are reduced and cheaper ingredients are used. The price increases are driven by concerns over supply as the El Niño phenomenon and climate change have caused extreme heat and diminished rainfall in key producing regions. Food manufacturers have already indicated that they will pass on the cost increases to consumers. Treats like confectionery have remained popular with shoppers despite price increases as they are seen as affordable luxuries. This has resulted in higher profits for manufacturers such as Mondelez and Hershey. Sugar prices have risen due to dry weather in India, the largest sugar producer in the world. Experts predict a production shortfall in the coming years. Cocoa prices have a more direct impact on consumer products and a poor harvest in the Ivory Coast is expected to reduce output by 15%. Chocolate manufacturers have limited purchases and are facing a shortage of supplies. This has forced buyers to purchase at higher prices. In addition to raising prices, manufacturers are also reducing product sizes and adjusting ingredients to cut costs. Erratic weather has also affected production of robusta coffee in Vietnam and Indonesia. Rising costs for these commodities highlight the fragility of the global food system. Surging rice prices due to El Niño and poor weather could drive up costs for other commodities and spur inflation in Asia.
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