Hazelnut price rises drive confectioners nuts

Do not be surprised if hazelnuts are missing in the packets of mixed nuts you pick up at the supermarket later this year.

Severe frost damage earlier in the year in Turkey, the world’s largest producer, has pushed prices to levels not seen in 10 years, leaving buyers scrambling for supplies.

Known for its crunchiness and distinct flavour, the treenut is a favourite among snacks companies, as well as a main ingredient for international confectionery groups. It is used in chocolate bars and spreads, such as Cadbury's Whole Nut bar, and Nutella, made by Ferrero, the Italian chocolate maker.

“It’s a big ingredient,” says Giles Hacking, managing director of London based nut trader CG Hacking. The price increase will be a shock to supply managers and buyers at large chocolate companies trying to meet budgets on ingredients costs, he adds.

The prices have remained stubbornly high even though the harvest in Turkey has started, and is posing a problem for confectioners, already suffering from a surge in cocoa prices . Turkey supplies more than 70 per cent of the world’s hazelnuts, and prices jumped in April after frosts devastated the crops grown in higher altitudes, destroying many of the young flower buds.

Turkish output forecasts have been slashed, with initial production estimates – based on flower count – of about 800,000 tonnes cut to 520,000 tonnes in 2014, says Brijesh Krishnaswamy, senior vice-president of edible nuts at Olam, the international agricultural trading house.

The benchmark price in Turkish lira, which was fluctuating around TL12 ($5.56) a kilogramme earlier this year, almost doubled to TL23/kg just after the frosts.

“Prices have settled around TL19 and will probably stay around there for now,” says Mr Krishnaswamy.

The 60 per cent surge in hazelnut prices this year comes on top of increases in other ingredients for the world’s foodmakers. Although grain prices have eased due to the expected bumper harvests in the US, South America and Europe, cocoa has rallied thanks to high demand for chocolate around the world. Coffee has also soared on adverse weather in Brazil, and almonds are at nine-year highs due to a drought in California.

Traders say many end users are waiting to buy hazelnuts, hoping for prices to come down over the next few months. There are also “defaults” by sellers who, seeing the sharp rally in prices, renege on their previous agreements, forcing some buyers who thought they had a contract, back into the market.

“It has been very very slow. These are still very high prices and people are buying hand to mouth,” says Michael Stevens, nut trader at Freeworld Trading in Edinburgh. “You can’t get any offers from Turkey still,” he adds.

Prices might start to ease later this year, say some analysts. “I would expect them to remain firm in the short term as the full extent of the damage will not be known until the end of the harvest period in October,” says Corrina Savage, analyst at commodity data group Mintec.

But many of the confectionery groups have little flexibility on the use of hazelnuts, as in most cases, they cannot be substituted with other nuts.

It is hardly surprising then that Ferrero – which also makes Ferrero Rocher and Kinder Bueno – last month announced the acquisition of Oltan, Turkey’s largest hazelnut processor with turnover of more than $500 million.

The Italian chocolatier is the largest buyer of hazelnuts in the world and boasts that “you could circle the globe 1.4 times with the amount of Nutella produced in one year”. Securing the supply of the treenuts is vital for its future.

The company said it had bought Oltan to “strengthen its presence in the hazelnut market in order to guarantee and further improve the quality of a leading raw material that gives a unique taste to many of its popular products”.

However, the deal has unsettled other chocolate manufacturers that trade with Oltan, who have suddenly found one of their suppliers being bought by a competitor.

The Ferrero transaction is understood to have prompted negotiations by companies looking for new suppliers.

The Financial Times