With the staggering increases in sugar prices this year, it comes as no surprise that US candy makers are starting to see the effects.

While initially hesitant to raise prices on products in the interests of the consumer, US candy makers may reconsider.

According to an article in the Denver Post yesterday, sugar prices have soared 95 percent this year and cocoa beans have been selling near a 20 year high on reports of diminished production in Ivory Coast. This is taking a bite out of confectioners' profits.

Denver Post writer, Steve Raabe, reports comments from multiple local confectioners including Andrew Schuman, president of Hammond's Candies of Denver. Schuman's comments likely represent a microcosm for small local confectioners nationwide.

Since Hammond's candies are handmade, labor costs represent the largest percent of production expenses, exceeding the cost of sugar.

Still, this doesn't mean the company won't be impacted by increased sugar prices; actually, Hammond's predicts a 4 percent cost increase for the upcoming year due to the commodity price.

If we turn our attention to a large scale confectioners, Schuman discusses a greater impact on their business.

Large scale manufacturers (think Nestle, Mars, and Hershey's), have a different proportional breakdown of expenses. Since they have automated systems in place for mass-production, ingredient costs, like those for sugar, represent a larger expense.

This considered, major events like this year's dramatic sugar price increases, have a more detrimental effect on the large company.

If candy prices (for the consumer) are maintained, the confectioners will have to absorb the extra costs, while the consumer gets the same "number of licks to the center of a Tootsie roll pop."

Large candy manufacturers aren't 'suckers,' even though they manufacture them. So, it's probably best to expunge any sugar-coated reveries you may be having of Charlie and The Chocolate Factory, immediately.

As sweet as they are, large confectioners are big business... candy is not free (sigh) and candy manufacturing employees are not Oompa-Loompas.

Expect to see a change in price of your favorite candy at your local convenience mart or market over the coming months.

In addition, like Hammond's in Denver that keeps a two month sugar supply on site, it my be a good idea to stock up on the precious sugar commodity, in case prices continue their upward trend.

Danisco, a world leader in food ingredients, announced results for the first quarter (2009/2010) and things are looking "strong" according to CEO Tom Knutzen.

The Q1 report for Danisco, whose food chemicals and ingredients are used worldwide in bakery and beverages, states that "cultures and Genencor were the drivers of organic growth."

Revenue is up 7% (DKK 3.5 billion) and group EBIT (earnings before interest and tax) increased by 27%, yielding considerable margin versus the same quarter last year.

Knutzen remarks,

"Internal cost containment and positive momentum for several of our products are starting to bear fruit, and we are satisfied that we are able to lift our outlook for the full year.
"Meanwhile, we maintain our focus on optimising the business to meet our financial targets."

Here are a few of the fiscal achievements that the report highlights (click the above link for the full report):

• Profit for the Group cam in at DKK 306 million against DKK 271 million last year.


• Sweeteners is meeting internal cash flow targets - its key priority for the current financial year.


• Enablers saw good demand for both Emulsifiers and GUms & Systems. Price momentum was mixed.


• Group organic growth of 2% was made up of stability in Enablers, 11% growth in Cultures, 6% growth in Genencor and weakness in Sweeteners.

According to this and previous reports, the top priority for Sweeteners is "to realign its cash flow," especially in response to the "fierce price competition" in the xylitol market.

Lastly, on August 20, 2009, the following key areas were emphasized at the Annual Corporate Meeting as the corporate focus:

• improve customer service
• optimize product portfolio
• optimize pricing to reflect value
• improve logistics and warehouse efficiency
• simplify sales structure

Present on Danisco's product roster are fibers (like polydextrose), thickeners and gums (like xanthan gum, pectin, and guar gum), sugars, and sweeteners (like Xylitol).

Many of these great food ingredients can be purchased with us at Cooperative Purchasers.

On Monday, Kraft Foods rolled out a bid (cash and shares) to acquire Cadbury, the British confectioner.

According to an article in Reuters, if these companies strike an agreement (and right now that is a big "if"), the acquisition will yield "the world's largest confectioner."

The new mélange will market Dairy Milk Chocolate and Trident gum (from Cadbury's portfolio) and Toblerone chocolate, Oreos, and Philadelphia cream cheese (from Kraft's portfolio), just to name a few sweet treats.

Kraft's offer to Cadbury shareholders was valued at 745 pence per share ($17 billion US dollars): an impressive sum, but it seems like it'll take more than money for Cadbury to agree to a sale.

Reuters stated that Cadbury Chairman, Roger Carr, was not the least bit enchanted.

In a letter to Kraft, Carr rejected the offer, and relayed sentiments that it undervalued Cadbury.

"Under your proposal, Cadbury would be absorbed into Kraft's low growth, conglomerate business model, an unappealing prospect which contrasts sharply with our strategy to be a pure play confectionery company."

Cadbury prides itself on its focused business model as a confectioner. Carr reinforced that an acquisition by Kraft would result in a business structure contrary to that of the Cadbury ideal... more like a "jack of all trades" model.

Carr also expressed apprehension about the value of Kraft shares that would be exchanged (330 pounds and 0.2589 new Kraft shares for every one Cadbury share) as part of the terms. Kraft share prices have dropped this week in conjunction with the value of the US dollar (especially compared to the British pound).

Despite Cadbury's initial dismissal, talks are still in progress.

According to Reuters, many analysts anticipate that Kraft will sweeten the deal, either with more cash or higher bid prices.

Aaah, just imagine owning all of that chocolate... and, if a transaction occurs between these two giants, imagine the wholesale sugar, wholesale salt, and wholesale food ingredient sales that will result!

Coca-Cola and PepsiCo are trying something new again this year.

First we had product reformulations with cane sugar seen in Pepsi Raw, Pepsi Throwback, and Mountain Dew Throwback.

We also saw both Coca-Cola and PepsiCo purchase stevia sweetener brands, Truvia and PureVia, respectively.

In keeping with the spirit of competition and their promise to investors, PepsiCo and Coca-Cola are now getting into the coconut water market, reported in a recent article by FoodBusinessNews.net.

Although we've seen those obscure containers at the supermarket, coconut water hasn't really hit the mainstream.

But now that two of the nation's largest beverage companies are adding the naturally hydrating and vitamin-rich nectar to their "Midas" list of products, that is about to change.

In mid-August, PepsiCo bought Amacoco, Brazil's largest coconut water producer.

And just this week, Coca-Cola made a significant investment ($15 million to be exact) in Zico Beverages, L.L.C., a Hermosa Beach, California, based provider of Zico Pure Premium Coconut Water.

Coconut water has been hailed by Zico as a natural sports drink, based on the natural sugar content and abundance of potassium, magnesium and even calcium.

Both Coca-Cola and PepsiCo certainly have the brand recognition and marketing aptitude to benefit the market for coconut water in the United States.

According to the article, the investment in Zico was led by Coca-Cola North America's Venturing and Emerging Brands business unit (V.E.B.).

President and general manager, Deryck van Rensburg, said,

"V.E.B. continues to seek out burgeoning brands that have the potential to change the way consumers look at beverages.

"Combining the natural goodness of Zico... and the brand building expertise of W.E.B. certainly makes for an innovative partnership."

As promised by both companies in press releases this year, Coca-Cola and PepsiCo are making good on their plans for innovation and expansion to maintain growth in the beverage arena, which is great news for food ingredients distributors.

And because no one likes to buy salt or sugar for no reason, it will be interesting to see what new products enter the market as a result of these two investments.