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ESM: A Year In Retail – Buyer's Brief: A Series Of Unfortunate Events, Issue 6, 2018

By Steve Wynne-Jones
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ESM: A Year In Retail – Buyer's Brief: A Series Of Unfortunate Events, Issue 6, 2018

In the run up to Christmas 2018, ESM is proud to present a recap of some of our biggest articles of the year, exclusively for Premium website subscribers. With 2018 drawing to a close, Nick Peksa examines the events that have shaped the commodity markets over the past 12 months. This article appeared in ESM Issue 6 2018.

Those familiar with the American writer Daniel Handler will certainly recognise the title of this article.

Under the pseudonym of Lemony Snicket, Daniel published a series of 13 fiction novels, with the final few titles being acknowledged for their intricate ethical ambiguity toward philosophical ambivalence.

It might be a very strange way to start to a Buyer’s Brief article, however, the modern world appears to be driven by a similar set of ethical ambiguities relating to climate change, modern-day slavery, nuclear proliferation, and much more. So, as 2018 draws to a close, we can be certain that the world, with globalisation and its growing digital economy, is extremely complex and becoming increasingly fragile.

Let’s initially reflect on a number of these ‘unfortunate events’.

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Weather Events

The climate is changing, and there is plenty of evidence to support this. European climatic predictions for the next 30 years indicate that average temperatures will increase by around one degree. Weather patterns will become more turbulent, with alternating episodes of drought and flooding becoming the norm. The growing seasons have already started to shift (see panel opposite), providing an extension to spring plantings and autumn harvests.

This year, parts of Europe have experienced an extended period of dry weather, and this has caused an ongoing problem to the supply chain of many water-dependent crops, particularly in regions specifically suited for growing staple products like potatoes, sugar beet, and rapeseed. Local growers of onions, pumpkins and carrots, unsurprisingly, have also experienced reduced yields, and the prices of these commodities are higher than expected.

The North-Western European potato harvest was estimated at 24 million tonnes. This is 18% lower than last season and close to 8% lower than the five-year average. This has driven prices to a five-year high, with no foreseeable price decrease imminent.

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On the positive side, the Iberian Peninsula has experienced excellent weather conditions for its core crops. Opportunities presented themselves in the olive oil and durum wheat markets. The dairy industry feared a shortage of winter feed for cattle, but this proved to be unsubstantiated. Finally, the water-starved rivers in Northern Europe rose to normal levels, allowing for the transportation of chemicals, extracts and crops to resume.

Global-Economy Events

The majority of global growth is being supported by the developing nations of Asia, however, the US economy has also been surging (up 0.9%, to 3% year-on-year growth), raised by increased consumer confidence and swollen by strong employment, which, in turn, has helped boost the dollar and increase interest rates.

Tax cuts have been used to encourage the repatriation of dollars, and there have been significant increases in public spending.

However, this is all too good to be true, as the level of global debt is riding at around $267 trillion dollars. The strong dollar is increasing imports to the US and decreasing exports, which is the opposite of the current administration’s protectionist stance.

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This has nicely led us into another unfortunate event: the declaration of a trade war between the US and China.

There are no winners in a trade war, however, the more agile Chinese experienced a surge in exports, as buyers had notice of when the tariffs would be implemented (also, a weakened yuan was very convenient).

China has also prepared for the eventuality of a trade war by stockpiling key commodities. Economics indicates that a trade war should assist in the slowdown of the global economy, however, in this case, I think the flow of trade will alter.

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Sao Paulo, Brazil. June 18, 2009. Man harvesting coffee on the orchard of the Biological Institute, the oldest urban coffee plantation in the country, located in Vila Mariana, south of São Paulo

Ethical Events

As developed nations are continually pursuing the cheapest price and the most profit, some growing regions are being forced into further poverty.

World coffee production for 2018/19 is forecast at 11.4 million bags higher than the previous year, at a record 171.2 million, primarily due to Brazil’s record output. With global consumption forecast at a record 163.2 million bags, exports are expected to increase in response to this strong demand.

However, consumption does not match production, and ending stocks are forecast to rebound following three years of decline.

This news has left coffee farmers devastated, as some are already selling their coffee at a loss. Perversely, the low price of coffee is stimulating the stock prices of the giant coffee chains – the rich get richer.

These issues have also been seen in the cocoa industry. World cocoa production for the current season is expected to decrease by 2%, to 4.645 million tonnes, compared with the previous season’s estimate of 4.739 million tonnes. This will hopefully bring the market back into a more sustainable position.

Countries like the Ivory Coast have taken direct action – its cocoa board has dampened the level of governmental representatives and increased the proportion of farmers. Already, farmers are experiencing better pay conditions, and some export taxes have been reinstated.

Ending Thoughts

The global search for wealth is riddled with ethical ambiguity – if something looks too good to be true, then someone is probably suffering somewhere in the supply chain. Whilst many companies are striving for sustainability, waste reduction and ethical sourcing, many others are just turning a blind eye.

This can certainly fill us with a level of mental disharmony, and we are riddled with positive and negative feelings.

We need to start to think about the community as a whole, and not just about ourselves.

For more information, contact [email protected].

© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Nick Peksa. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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