Packaged Food 2012: Is Commodity Price Deflation on the Cards?

Introduction

Scope

Objectives of global briefing

Key findings

Commodities Deflation Assessment

After the collapse, the recovery

Fast forward to 2012: Debt woes hamper global economic growth

Price rises for oil unlikely to be repeated in 2012

Grain prices are strongly affected by fluctuations in demand for oil

Economy to hamper corn prices despite tighter stocks

Bumper global wheat crop expected as consumption falls

Cocoa prices falling as production outstrips consumption

Commodity price deflation? Probable scenarios for 2012-13

Supply Chain Impact

Commodities price deflation: Supply chain savings opportunities

Stable commodities prices: Potential supply chain savings

Supply chain savings: Potential impact on emerging markets

Supply chain savings: Impact on developed markets

Country Focus: Milk in India

India’s economy bounces back from nadir of 2008/2009

Milk’s share of overall consumer spending falling for urbanites

Domestic milk production: India vs the rest of the world

India’s milk output currently insufficient to meet future demand

Supply chain for milk in India

Demand side: Steady growth for processed milk in urban areas

Indian milk consumption benefits from perceived nutritional benefits

Supply side: Economies of scale in larger dairy farms

2011 retail milk prices rise on the back of higher commodity costs

Indian processed milk more easily impacted by volatile input prices

2011-2013: Weaker prices supports transition to processed milk

Targeting kiranas to maximise retail exposure

Country Focus: Bread in Spain

Obesity concerns and economic woes hamper bread sales in Spain

Private label packaged/industrial bread benefits from downturn

Slow but steady shift from packaged to unpackaged formats

Processing accounts for majority of bread production costs

Price of raw materials contributes most to flour processing costs

Labour the single largest cost in Spanish bread production

Distribution stage is also fairly labour intensive

Labour and energy costs affected by fluctuating commodity prices

Rising costs: Impact on Spanish flour processors

Retail bread prices decline in the face of rising input costs

Greatest pressure faced by processors

Correlations between input cost volatility and retail bread prices

Poor economic prospects could help drive down future retail prices

Commodity deflation bolsters opportunities for premium brands

Final Conclusions

Where next for agricultural commodities in 2012-2013?

Despite short-term fluctuations, general trajectory remains upward

Rising demand in emerging markets drives up costs longer term

Report Definitions

Report terminology

Product category definitions

Retail distribution definitions

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