Turbulence in commodity market has put the entire food supply chain under pressure in recent years, as suppliers have had to pass some of the extra expense down to their customers so that, ultimately, consumer prices had to bear higher prices for some products at the supermarket check-out.

Memories of the extreme spikes seen in late 2007 and early 2008 are still vivid, and have left wary manufacturers on the look out for warning signs. Ingredients companies, too, try to predict commodities that look likely to soar, so they can propose less vulnerable alternative ingredients.

In the last month concerns have been raised over bread prices after Russia decided to temporarily ban wheat exports following drought that reduced production. As a result the FAO has revised downward its forecast for 2010 world wheat production levels, reporting that wheat market dynamics drove international food prices up in August by 5 per cent – the biggest month-on-month increase since November 2009.

Andrew Wood, senior research analyst at Bernstein and Associates, is warning that commodity inflation will be seen across the board in the second half of this year. However on aggregate, he expects the hikes to be more manageable this time around.

Although some commodities like wheat, milk and coffee have risen significantly in the last month, overall inflation in H2 2010 and 2011 will not be extraordinary – and much will be off-set by pricing, volume leverage and cost savings. Certainly many firms have already put new systems for tightening their belts in times of strife, so it seems they may have learned some lessons back in 2007.

Of the major manufacturers, Nestle and Unilever are expected to do better than Danone, which was already taking a commodity hit in H1 (Danone benefited from commodity deflation around 6 months ahead of the others in 200).

“We believe we are seeing a return to more ‘normal’ conditions for the [European food] group… the return of commodities inflation but also the return of positive pricing, and this should allow for continued healthy operating performance to the medium term, ”said Wood – but he added “although we do worry about Danone over the next 6 to 12 months”.

Commodity watching

Wood’s commodity predictions are based on Bernstein’s Food Commodities Index, which tracks the price of 14 ingredient commodities, including milk, coffee, cocoa and sugar, and 6 related to packaging, such as crude oil, aluminium and PET.

He has observed that although 2007/8 was a grave period, they were followed by the first year of deflation in a decade in 2009.

Moreover, the worrisome headlines on wheat prices look to be somewhat overblown. Although the index shows wheat to be up 27% since the low of February 2009 and up 12% since this time last year, it is actually down 2% since January 2010.

“While admittedly it is still a very early estimate, our index indicates that 2011 commodity inflation would be +2% based on maintaining commodity prices at current levels,” said Wood.

Several firms contacted by FoodManufacture.co.uk this week said that Amazon had launched the UK grocery site six weeks too early, had failed to market it properly and failed to devote sufficient resources to handling administrative aspects of the set-up process for suppliers.

One small company that has products listed on Amazon but fulfils orders directly through its own online store, said the whole experience to date had been “very frustrating”.

A source there added: “The people we had to speak to initially were not the same people we subsequently had to deal with, which has made the whole process quite challenging. We also thought there would be more work done on the marketing side, but that doesn’t seem to have happened yet.”

One much larger firm said: “The results so far have been somewhat disappointing but we are working with Amazon to address some of the issues.”

Some others said they “haven’t sold much yet” but hoped things would pick up.

Grounds for optimism?

However, most suppliers we contacted still remained upbeat about its long-term prospects and said it was unfair to compare it with shopping at Tesco.com or Ocado because it was not trying to do the same thing.

One ethnic foods specialist said that sales had picked up after a lacklustre start and that more customers were now using the site to buy its products in bulk.

The IT manager at the firm added: “We’ve had a few orders to start with that were obviously from competitors that were just checking us out, but generally we’ve been fairly pleased with how things have picked up since. Funnily enough, we’ve had a lot more male customers via Amazon than we usually get!”

The fact that Amazon had not spent a fortune on launch marketing was probably deliberate he speculated, with the firm keen to iron out technical problems, get a feel for how customers were using the site and identify where the growth opportunities were before spending a fortune on marketing.

Early days

Amazon has declined to answer specific questions from FoodManufacture.co.uk about sales targets or teething problems raised by suppliers, but stressed that it was “early days”.

A spokeswoman added: “Our aim is to be the place where customers can find and discover any product they want to buy online and we have created a store that not only includes a great choice of household favourites but also a large selection of international, niche and ethnic foods, many of which may have proved hard to find for shoppers in the past.

“As well as offering low prices on individual items, customers can also take advantage of the great value and convenience offered by bulk-buying everyday products such as nappies, washing powders and petfood.”

Fulfilment model

The fulfilment model for the new grocery store (with bulk ambient groceries delivered from Amazon’s own depots but niche and temperature-controlled products delivered directly from suppliers) has proved controversial, as customers ordering several items could potentially receive – and pay delivery charges for – scores of separate deliveries.

However, more products were becoming available centrally, claimed the Amazon spokeswoman: “There are thousands of items available directly from Amazon.co.uk for free delivery and we will continue to work tirelessly to increase that selection.”

“You can’t lower the price of raw materials or labor. But with prices rising it’s more important than ever to get your own costs down,” said a spokesperson for the organization. “Overhead costs, processing costs, capital costs… look across your supply chain — into the extended network of parties and layers involved. There’s room for efficiency and savings. Now is the time to address it.”

The 10-step route to costs savings and greater efficiency include:

1 Paper assessment

2 Change transactions

3 Maximise financial strengths

4 Go direct

5 Keep close to source

6 Find partners

7 Diversify

8 Closer sourcing

9 Explore new options

10 Low investment

TradeCard’s top recommendation is to perform a paper assessment. “Examine your supply chain and find where paper is being used most, whether in purchasing orders, invoices, settlements or letters of financing,” according to the report. “Wherever paper is involved, there are likely to be some errors and inefficiencies.”

Changing transactions with trading partners by harnessing flexible technology could help to avoid re-keying data and other manual tasks leading to cost savings.

Maximising financial strengths such as an excellent credit rating could help your suppliers secure better interest rates. Or if you company is financially stronger than the other partners in a transaction, you can help them with early payment invoices, advises the organisation.

Eliminate layers

Going direct will help to eliminate layers within the supply chain by transporting directly to customers and finding ways to transport goods in less time.

Keeping close to the source refers to finishing customization or other services abroad instead of finishing production domestically. Reducing domestically held inventory can provide major savings.

Forging partnerships will help to reduce overseas resources and staff.

Diversification is recommended to help spread risk and cut exposure overseas. “Try to find alternatives to expensive operating costs, such as signing on with partners in regions that are more cost-effective than others,” advises the report.

Switching to a sourcing hub closer to your main area of business can trim weeks off of transport time, reduce costs and cut down on cycle times, leading to significant savings.

Similarly, exploring new ways to connect with suppliers, service providers and financial organizations will enable companies to adjust their supply chain processes according to needs.

Finally, moving to low risk, low investment models such as cloud computing can also help to reduce costs significantly, according to TradeCard. (Cloud computing refers to sharing resources, such as software, and information on demand).

The company’s 10-step route to cost savings are explained in the report Battling the Rising Costs of Raw Materials and Production .

The intense sweetener from monk fruit, or luo han guo, is said to be up to 300 times sweeter than sugar and has been used for many years to sweeten products in parts of Asia.

Although it has yet to be approved for use in foods and drinks in Europe, a branded version of the ingredient – Fruit-Sweetness – has the green light for use in the United States. Its manufacturer, New-Zealand-based BioVittoria is now planning to submit for regulatory approval in Europe.

However, although analysts point to increased interest in the sweetener, they also note that major food and drink firms are still cautious in their approach to the ingredient.

“Although it does mirror stevia in that it has been allowed in parts of Asia for many years, stevia does have the added advantage of being used in processed foods and drinks in Japan for many years, developing formulations and applications that could then be adapted more easily for the Western market,” says Innova Market Insights.

“Where it has yet to score is in being taken up by the major food and drinks companies and used in their products.”

An ‘emerging natural sweetener’

Mintel also points to luo han guo as one substance that has recently emerged in the market to address the increasing consumer desire for ‘natural’ products.

Information from its Global new Products Database (GNPD) reveals that 56 products containing luo han guo have been launched globally since 2002. Most of these (19) come from China, followed by Hong Kong (7), the US (7), Taiwan (5) and Malaysia (5).

“In the US, Neway Sweet Sensation is a natural sweetener that is made from the whole fruit of luo han guo and is free from sugar, aspartame, sucralose and saccharine. The product is suitable for diabetics and contains no calories,” says Mintel.

“In Mexico, Super Life Natural Sweetener is a low glycemic sweetener that also provides prolonged energy. This product is free from sucralose, aspartame and phenylalanine and is suitable for diabetics. It is kosher certified, contains more than 20 per cent of prebiotic fiber and is low in sodium. The product derives its sweetness from the plant derivative luo han guo, an emerging natural sweetener.”

BioVittoria

Fruit-Sweetness from BioVittoria, which is around 150 times sweeter than sugar, is produced via a patented process from fruit cultivated using the firm’s patented plant varieties at a processing facility in Hamilton, new Zealand.

According to the company’s chief executive David Thorrold, the intensity of the sweetness in the extracts is directly proportional to levels of a compound called Mogroside V in the flesh of the fruit

“Since we received our no objection letter from the FDA we have had phenomenal interest. A number of products incorporating Fruit-Sweetness have already been launched in the US, and there are projects underway using it at most of the world’s largest food and beverage companies,” he told FoodNavigator sister publication FoodManufacture.co.uk earlier this month.

“We will be applying for regulatory approval [in Europe] in the near future,” he said.

The sweetener, which is derived from naturally-occurring sugars in carob, apples and grapes, has secured listings in Tesco, Holland & Barrett, Waitrose and Ocado, where it is sold in 400ml bottles.

However, it has recently increased its profile amongst food manufacturers after Kirsty Henshaw, a contestant on TV show Dragons’ Den, secured funding to develop a new range of iced desserts containing the sweetener.

The desserts, manufactured by R&R Ice Cream, will be launched in supermarkets next month.

25% fewer calories than sugar, gram for gram

Leading food manufacturers are now trialling Sweet Freedom in health bars, coffee syrups, frozen yogurts, sauces, fruit compotes and several other products, Tina Michelucci, joint md of brand owner Diet Freedom told FoodManufacture.co.uk.

“Manufacturers appreciate the sugar-like, neutral taste, and many of the more natural focused firms are now switching to Sweet Freedom from agave syrup – we have two-or three enquiries a week – and from maple syrup, which is almost triple the price of Sweet Freedom at the moment.”

The sweetener, which is claimed to have 25% fewer calories than sugar gram for gram, can replace sugar, honey, high fructose corn syrup, glucose, gomme, golden, maple, agave and rice syrups in a range of products. As it has a low glycaemic load it is also a good option for diabetics, she added.

It also has excellent binding properties, making it ideal for cereal coatings, bars, flapjacks and cookies, claimed Michelucci. “It is ambient with a two-year shelf life and unlike honey is very stable and will not crystallise.”

A darker variant is also being used instead of honey in granola, flapjacks, smoothies, drinks, cakes, bars and dressings.

Labelling – front and back of pack

Firms keen to highlight their ‘natural’ credentials have been using terminology such as: ‘only contains sugars naturally occurring from fruit’ on the front of pack, and listing Sweet Freedom on the back as: ‘natural fruit extracts (apples, grapes and carob)’, she explained.

Others are using the phrase ’sweetened with Sweet Freedom’ on their packaging as awareness of the brand has increased through retail listings.

Extracted using water (rather than chemicals or enzymes), Sweet Freedom contains a variety of naturally-occurring sugars and polyols, but less fructose than agave syrup, golden syrup or honey.

The 55-acre site, which makes canned baked beans, pasta, soup and puddings, is the largest food production facility in Europe.

Efficiencies have been achieved across the board through working closely with the Carbon Trust, utility manager Barry Aspey told FoodManufacture.co.uk.

However, the biggest savings have come from capturing and recycling waste heat from blanching (heating water to rehydrate dried beans) and steam-heating (sterilising) the beans in their cans, plus improved boiler efficiency.

During blanching, dust and debris from the beans accumulate in the water, which needs to be periodically drained off and replaced with ‘fresh’ hot water.

Heinz now uses the hot ‘blowdown’ water to heat new water for blanching via a heat exchanger. By opting for a plate system protected by a self-cleaning rotary filter, it has been able to prevent the debris removed during blanching from clogging up the system, said Aspey.

“This reduces the heat requirement by about three-quarters and largely removes the need to cool the effluent blowdown water before discharge. The heat exchanger has delivered impressive results and it gave us a return on investment in just two years.”

Hydrostatic sterilisers

Meanwhile, the factory’s hydrostatic operator Peter Gwinnet has halved steam consumption in the factory’s hydrostatic (vertical) sterilisers by identifying a way to keep their two water streams – hot water at 80°C and cooler water at 40°C – separate.

Previously, the two streams were mixed and then sent for storage. When new water was required it was then heated back up to 80°C. Today, the cooler water is recovered to another water system.

Rotary sterilisers

Further work has focused on the rotary sterilisers, in which water is also segregated into high and low temperature streams, meaning heat from the ‘hot’ stream can be recovered and used to preheat other process water systems.

Further efficiency savings were generated by reducing the size of ‘bleed holes’ on sterilisers after discovering they were bigger than the legal 3mm minimum and were releasing more steam than necessary.

More efficient boilers

Separately, Heinz has improved the efficiency of its boilers through including a condensing economiser in its new energy centre, said head engineer Phil Crompton.

“Heinz is seeing a consistent overall thermal efficiency of over 90%, around 15% more efficient than the previous boiler house. The project gave a simple payback of 18-19 months, and the new energy centre has reduced emissions by 9,000t of carbon dioxide a year.”

Renewable energy

Heinz is also exploring opportunities to produce power from waste and use more renewable energy (wind, solar) in a bid to meet its company-wide goal of reducing carbon emissions by 20% by 2015 (compared with 2005 levels), added Crompton.

“We are exploring the possibility of introducing anaerobic digestion. Reducing waste and increasing the use of renewable energy, this would help the factory achieve two of the company-wide sustainability goals. It could also save almost 3,200t of carbon dioxide a year at Kitt Green.”