The price of packaging: inflation increasing sugar prices
The market price of sugar has increased from 13 c/lb to 17 c/lb in just over ten months and, as detailed in our recent global sugar market report, this is turning the manufacturing of sugar into an expensive business. In this blog, we focus on packaging costs and explain the effect inflation is having on sugar prices.
Packaging price increases – market overview
Price increases are being experienced the world over in not one, but three core packaging materials: plastic, paper and timber.
Some of the sharpest increases have been felt in plastics, with market prices up 6.1% month-on-month since the start of the year. One reason for such increases is believed to be high demand for polymers to manufacture bulk supplies of personal protective equipment (PPE), with some polymer prices believed to have risen by 70% over the past 12 months.
Intermediate bulk containers (IBCs) are used to transport pure sugar syrup orders.
Similarly, paper and cardboard prices are believed to be at their highest since 2011. Leading packaging supplier Smurfit Kappa, for example, has raised its prices by approximately 5% quarter-on-quarter from April to June 2021, according to this Reuters article.
And the global price of timber has risen dramatically, too. Using figures from the US Bureau of Labor Statistics, this Bloomberg article reports that prices per wooden pallet have risen by over $80 since the beginning of 2021.
The trouble for businesses is that price increases across each of these materials is uncertain and volatile. Market fluctuations are occurring on an almost weekly basis, offering little in the way of stability and long-term planning throughout food supply chains.
Why have packaging prices increased?
Naturally, the main reason why packaging prices have increased is demand. Each packaging material is currently in significant demand in the UK and across the globe and this competition, in turn, drives up prices. Add to this the erratic supply of materials and the opening up of economies across the world, and demand soon starts to escalate.
But what is causing this on a more granular level?
The first key factor is of course the Covid pandemic. Lockdowns, plant workers self-isolating and social distancing restrictions have resulted in delays and reduced productivity. With reduced output, this means fewer materials to sell, driving up competition and prices.
Crystalline sugars are packaged in 1,000kg bulk bags or the 25kg paper sacks seen here, depending on customer requirements.
For paper and cardboard, specifically, the lockdowns have also helped change consumer buying behaviour towards ecommerce shopping, with products delivered straight to consumers’ doors. These at-home deliveries principally rely on paper and cardboard packaging and have consequently increased demand for such materials by 40%, as reported by Smithers consultancy.
Timber prices, on the other hand, have been impacted by the UK’s post-Brexit environment as well as rising global lumber costs. The new legislation following the UK’s departure from the European Union (EU) has resulted in restrictions and therefore delays bringing timber into the nation’s key ports, and this has caused supply shortages. And with the UK importing approximately 80% of its timber, global price increases are hard to ignore.
How does this affect the supply chain?
As in most industries, the packaging costs are comprised within the price of the finished product. Let’s think of this in sugar terms, though. Crystallines and syrups are often packaged and delivered in flexible intermediate bulk containers (FIBCs) and intermediate bulk containers (IBCs) respectively. Both of which are manufactured from plastic.
Then, the only viable method of transporting these FIBCs or IBCs is by placing them on pallets. Considering approximately 90% of pallets used in business operations are made from timber, these price increases must also be factored in.
For a sense of scale, now consider the fact that an FIBC typically holds 1,000 kilos of sugar – which is not all that much in commercial transactions. You therefore need to fill an entire heavy goods vehicle (HGV) for the delivery to become efficient. So, when packing an HGV with 26 pallets, these packaging costs soon start adding up.
IBCs are transported on plastic pallets, allowing them to be safely moved by forklift trucks and then secured on HGVs.
So, what does this mean for customers?
Put simply, packaging costs are unavoidable. Transporting products on pallets is the only viable, reliable and effective bulk delivery mechanism while plastic packaging is ubiquitous in commercial business operations.
Manufacturers and their customers therefore do not have much in the way of options. They must choose between absorbing the costs themselves and allowing it to eat away at their margins, passing the cost onto consumers, or a combination of the two. However, it is important to remember that price is only part of the equation – the most important thing for longevity is security of supply.
Ragus has 90 years’ experience manufacturing sugar for industry, meaning it has a holistic understanding of sugar supply chains and the challenges they experience. To find out how we can support you through inflation, contact a member of our customer services team on +44 (0)1753 575353 or firstname.lastname@example.org. For more sugar news and Ragus updates, follow Ragus on LinkedIn.