Eurozone crisis and commodity price stalemate will force industry consolidation: Analyst

09-Oct-2012 - Last updated on 10-Oct-2012 at 14:18 GMT

Will eurozone crisis combined with commodity highs cripple industry?

Smaller bakery and snack manufacturers will be forced to consolidate with stronger entities within the next six months as the eurozone crisis looks set to worsen and commodity prices remain high, an analyst says.

Yesterday, the International Monetary Fund’s (IMF) semi-annual report on the global financial sector highlighted the eurozone as a cause for concern. It stated that confidence is ‘fragile’ and Europe’s woes are now a risk to global financial security.

Should the situation in the eurozone worsen, smaller bakery and snack manufacturers will be hit hard as this problem collides with sky-high commodity prices, Francisco Redruello, senior food analyst at Euromonitor International, told BakeryandSnacks.com.

“We will see further market consolidation because smaller companies need the financial capacity to survive in the current economy with the commodity situation,” Redruello said.

Some companies will disappear, some will merge, he said, and this integration will happen over the next year.

“Smaller manufacturers will suffer more because they are more exposed to the currency fluctuations and volatility. Whereas international players are in a much better position to face these challenges because they have facilities and buying power across the globe,” he added.

Manufacturers will need to hedge currencies against commodities, especially if the Euro weakens, he said.

Commodities: Sky-high but steady

“We’re not looking at commodity volatility anymore. What we are seeing now is very, very high prices that have been stable for some time. And looking at the futures market, we are not seeing a significant decline in prices,” Redruello said.

Prices have been high since mid-June, he said, particularly on wheat and corn. Wheat prices have surged 30% in the last three months, he added.

“These commodity pressures add to the traditional recessionary pressures that manufacturers are already feeling,” he said.

These pressures have forced, and will continue to force, polarization in the bakery and snack sector with manufacturers targeting either private label or premium.

Pursuing private label enables increased production volumes with guaranteed business, he said, and premium developments like gluten-free and fiber enrichment ensure higher returns.

Commodity prices are not set to dip and the euro is likely to weaken, spelling very real problems for industry players, he concluded.