Rice flour cost hike alert adds to food inflation forecasts

19-May-2021 - Last updated on 19-May-2021 at 13:59 GMT

Global grocery firms have warned of raw material inflation

Eurostar Commodities has warned a global shortage of rice flour is likely to lead to price increases in many everyday food staples, amid ‘smoke signals’ of rising costs from global food firms.

Rice flour is mainly used as an ingredient in common food products, from baby food, desserts and soups to stews, coatings and batters. It is also used widely in gluten free products. Rice flour is usually derived from broken rice grains fractured during the milling process. The broken grains are deemed inferior and so are separated from the whole grains and sold as ‘Broken Rice’.

Jason Bull, director, Eurostar Commodities warned several crucial factors had combined to create a European shortage of rice flour. “We are experiencing a severe shortage of rice flour right now, in Europe.

“There are 50% less ‘brokens’ available due to problems in the Far East, namely the Myanmar coup and the COVID-19 pandemic in India, which have slashed production in half. On top of that we have a shortage of container and breakbulk vessel availability, increased freight costs as a result and taxation rates.

‘Increased hospitality and foodservice demand’

“We also have a new increased demand in the UK from the hospitality and foodservice sectors as we reopen. New TCA [EU-UK Trade & Cooperation Agreement] regulations since Brexit also decree that rice flour brought into the UK has to be made from European origin ‘brokens’.

“To meet demand we are seeing manufacturers making rice flour by milling long grain rice at a ridiculous price which can only lead to massive price hikes on items like baby food that rely on rice flour as a key ingredient.”

Clive Black, head of research at Shore Capital, noted recent ‘smoke signals’ across the global food chain, including from grocery giants Nestlé, Unilever, Kellogg and Danone flagging upward pressure on costs. Danone had stated price inflation in milk, ingredients, packaging and logistics, for example.

Black observed that historically, the top supermarkets had often used promotions as a mechanic to offer shoppers better value. However, this had made them vulnerable to discounters Aldi and Lidl. Consequently, he believed the supermarkets would be reluctant to use the same mechanic now. As a result, price inflation would have to be managed differently.

Nestlé and Unilever: significant price pressure

“Noting that major global players such as Nestlé and Unilever have already raised the prospect of significant price pressure, it is not unreasonable to anticipate that they and their like are likely to be the first step in price changes,” said Black.

“In passing price rises through, we would expect these suppliers to be taking a look in the mirror and seek to mitigate cost pressures where possible through internal efficiency programmes.

“Once proprietary brand (PB) price rises go through they do not arrive in a vacuum. Hence, the retailers will be considering whether or not the raise is necessary too.

“If they have concerns, they may turn to tertiary brand suppliers and private label (PL) players as a resource to offer the shopper stronger price value. Indeed, the relationship between PB and PL is a constant tension even with all the talk of supply partnerships and category management.”

Black predicted any price inflation would be manageable and could help make 2022 sales results compare more favourably with 2021 full-year figures artificially inflated by a lockdown-related surge in grocery spend.

Shortages of plastics raw materials

In April, the European Plastics Converters (EuPC) warned in a statement: “The European plastics converting industry is facing severe shortages of raw materials and extreme price increases never experienced.

“This situation is threatening the economic survival of numerous small and medium-sized enterprises but also endangering the production of countless products, ranging from applications in the building and automotive industry to essential goods for the food packaging and pharmaceutical supply chains.

EuPC managing director Alexandre Dangis said: “Manufacturers of plastic products all over Europe are experiencing serious bottlenecks in the supply of raw materials since the beginning of this year. Delivery problems have become increasingly widespread, affecting raw materials such as polypropylene, polyvinyl chloride, and polyethylene.”

What’s causing the shortages?

Ron Marsh, chairman of the Polymers for Europe Alliance, said: “The current shortages are caused by the improving global economy in combination with exports of plastics from Europe to Asia and North America.

“Logistical problems due to a shortage of containers to Europe also contribute, as does the lower production of plastics in the US. Furthermore, the demand for certain raw materials used for protective articles against COVID-19 is extremely high.”

In response to suggestions that these plastics shortages could be offset by switching to more environmentally friendly materials, EuPC stated: “In several applications, legal safety regulations, technical hurdles, and quality requirements currently prevent the wider use of recycled materials. Recyclates are not available in sufficient quantities and consistent quality yet.

“Where recyclates are established alternatives, prices are rising significantly to parallel virgin material - and availability is declining.”