KUCHING: The recent hike in sugar prices should not result in any significant impact on large food-and-beverage (F&B) players in the country, although it would potentially hurt smaller producers and retailers who may face higher raw material costs.
Effective Jan 1, sugar costs 20 sen more per kilogramme (kg) to RM1.65 per kg in Peninsular Malaysia, while in Sabah and Sarawak it is priced at RM1.75 per kg. Previously, it was priced at RM1.45 and RM1.55 per kg, respectively.
OSK Research Sdn Bhd stated in its research report yesterday, that the price hike will not substantially disrupt the margins of larger food manufacturers such as Nestle (Malaysia) Bhd (Nestle), as it usually purchases in bulk.
It added that with effective cost-management and ingredient ratios, the companies would be able to better-manage costs as sugar only comprised one of the raw materials used in food production.
Further, the rise in sugar prices would not curb food consumption as the segment has always been fixed, market-wise.
In a recent statement, Nestle said it has embarked on in continuous improvement in operational efficiency and other cost-reduction initiatives to ensure the operations are cost-competitive. Adding to this would be its aim to always avoid passing these cost increases to consumers, unless it is absolutely necessary.
However, OSK Research pointed out that bread prices would increase gradually in line with the rise in sugar prices, noting that the new retail price of white bread is at RM2.30 per loaf.
Moreover, the research house believed that current price would not be sustained for long as the Bakery Manufacturers Association, which meets regularly to fix bread prices, is expected to raise these prices gradually in line with wheat prices.
For big beverage manufacturers such as Fraser and Neave Holdings Bhd (F&N), the impact would be negligible as the minimal increase in sugar price would only translate into an extra one sen in raw material costs.
Research house AmResearch Sdn Bhd noted that while sugar remains one of the vital items in F&N’s soft drinks and dairy products, it only makes up 10 to 12 per cent of its total operating costs. Almost half of the costs come from packaging materials such as aluminium and polythylene terephthalate plastics (PTP).
In any case, AmResearch believed that the beverage manufacture should be able to pass down additional costs to consumers by slightly increasing its product prices to an extent that should not be a burden to the public. With almost 80 per cent of its products fall under the RM2.50 tag, the research house pointed out that it would not present much of a deterrence for consumers.
Further, it forecast F&N to record strong earnings especially during the first half of this year, boosted by Chinese New Year celebration next month as well as other major festivities throughout the period. Adding to this would be the launching of new F&N’s drink variants beginning by the end of this month, except for its cola and lemon-lime carbonated soft drinks.
MINIMAL IMPACT: Analysts say the impact of the sugar price hike would be negligible for big beverage manufacturers as it would only translate into an extra one sen in raw material costs. — Bernama file photo