Archive
Capitalism and the price of chocolate
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From a previous blogpost published on 4 July 2013, in The Daily Blog…
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The Price of Cocoa (2013)
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Three cans of cocoa tell an interesting story.
Can A is the oldest, with an expiry date of April 2011. The can measures 110mm (H) x 75mm (D). It contained 200g net dry cocoa powder.
We purchased Can B sometime in 2011 (?). The expiry date was March 2012, so it’s the second oldest can.
Interestingly, it also contained 200g net dry cocoa powder. However, whilst the contents remained the same as Can A – the dimensions of the can inexplicably increased; 130mm (H) x 75mm (D). Same diameter as Can A – but 20mm taller. Contents remain the same net weight.
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A month ago we purchased Can C (expiry date, March 2015). The dimensions of this can is the same as Can B: 130mm (H) x 75mm (D). But this time, the contents decreased from 200 to 190g net dry cocoa powder. Ten grams less.
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So the up-shot? The can-sizes have gotten bigger – whilst the contents has reduced by 5%.
On 9 June, I emailed Nestle to find out what was going on,
Kia ora,
It has recently come to my attention that two cans of Nestle Baking Cocoa measure 110mm X 75mm, whilst the other measures 130mm x 75mm.
Both contain 200g net cocoa powder.
The smaller can measuring 110 x 75 has a “best before” date April 2011.
The larger can, 130×75 has a “best before” date March 2012.
It appears that you have increased the SIZE of the can, whilst the contents remain the same.
Is there a reason why the size of the cans was increased, by 20mm in height?
And can you confirm that the price stayed the same; increased; or reduced; when the change was made from a 110mm height to 130mm height?
(The email was sent prior to purchasing Can C.)
Perhaps not surprisingly, I received no reply from Nestle. [Blogger’s note: I never received any reply from Nestle.]
Unfortunately, I never retained the receipts for Cans A and B, otherwise I could compare prices. But what’s the bet that the retail price probably increased?
And thus it came to pass…
“As short a time ago as February, the Ministry of Plenty had issued a promise (a “categorical pledge” were the official words) that there would be no reduction of the chocolate ration during 1984. Actually, as Winston was aware, the chocolate ration was to be reduced from thirty grams to twenty at the end of the present week. All that was needed was to substitute for the original promise a warning that it would probably be necessary to reduce the ration at some time in April.” – George Orwell, ‘1984’
Doubleplusgood!
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The Price of Chocolate (2015)
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A recent story in the media caught my attention;
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The unattributed Fairfax article further stated,
Amanda Banfield, managing director of Australasia for Mondelez International, the parent company that owns Cadbury, said she expected a backlash.
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She pointed to rising packaging costs and a lift in the price of raw materials.
The main ingredients are cocoa, sugar and milk.
So let’s have a look at the prices of raw ingredients.
Sugar.
This commodity dropped in price from NZ$0.22 per pound, in July 2014, to NZ$0.20 per pound, by January of this year, according to IndexMundi.com;
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Over the last year, the price of sugar increased, peaking in July last year, before falling back;
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But taken over a five year period, look at how the price of sugar has dropped dramatically;
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So the rationale for Cadbury’s decision to de facto increase their prices cannot be blamed on sugar, which is cheaper now than it was, five years ago.
Let’s have a look at cocoa (beans) – and a similar story unfolds;
Six months – a 3.95% increase;
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Twelve months – a 12.26% increase;
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However – over 5 years – a 21.06% drop in price;
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It would be interesting to note if when the price of cocoa beans collapsed to NZ$2,601.96 per metric ton, in March 2013, did the price of a Cadbury’s bar of chocolate increase in size? Or fall in price?
As for the price of packaging, this would be based on a local commodity (paper and ink) and if New Zealand’s low inflation is anything to go by (an average of 2.7% pa since 2000), would not be much of a factor in pricing. With the exception of four Quarters around late 2010 to mid-2011, inflation has remained at or below 2%, a fallout from the 2008 Global Financial Crisis and ongoing recessionary/low-growth influences;
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So with commodity prices for sugar and cocoa beans lower now than five years ago, and with low inflation, what other cause could there be for the de facto price price of Cadbury’s chocolate bars?
Perhaps the answer lies with Kraft’s acquisition of Cadburys for £11.5 billion (US$18.9 billion) in 2010. Kraft financed the take-over deal by borrowing a massive £7 billion (US$11.5 billion) to finance the deal.
However, the New Zealand branch of Cadbury’s did not return a profit to it’s parent company (Mondelez International) until three years later, when it paid a dividend of NZ$40 million to its parent company, Mondelez.
According to statements, Cadbury NZ’s profit tripled to $11.6 million, from $3.5 million a year earlier, even as costs fell by 2.3%.
So despite falling costs, and increased profits, Cadbury NZ was struggling to make dividend payments to it’s parent company, and meanwhile Kraft was committed to servicing a £7 billion (US$11.5 billion) loan which had financed the acquisition in 2010.
The reduction in Cadbury’s chocolate bars can therefore be attributed to Kraft’s indebtedness rather than the official company line of increased costs. Unless Cadbury is lying in it’s financial statements, their costs have actually fallen, not increased.
As with many corporate takeovers, the benefits do not necessarily accrue to the public. The number one beneficiary is almost always shareholders, and consumers come a poor second (or third, or fourth…).
In this case, reducing the size of Cadbury chocolate bars by 20% is equivalent to a price increase, and Kraft’s shareholders will reap the rewards of increased profits.
Not exactly a sweet deal for New Zealand consumers.
Postscript
On 15 February, I contacted Statistics NZ, to enquire how SNZ views reduction in product sizes, whilst retail prices remain the same, in it’s calculation of the Consumer Price Index (CPI).
Dave Lum, from Statistics NZ replied;
The CPI measures price change in a “fixed” basket of goods and services, which means that we aim to measure price change based on quality being constant. In an instance where the quality (in your example, the weight/size) of an item changes, we show a price adjustment to account for the fact that the quality of the item has changed.
As an example, if the size of a can of beans goes from 300g to 330g for the same price, this is shown as a price decrease for that item in the CPI. Likewise, if the can of beans went from 300g to 250g for the same price, it would be represented as a price increase.
So according to Mr Lum, Cadbury’s “switcheroo” with product sizes, will not materially distort CPI price measures.
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References
Fairfax media: Cadbury blocks get the chop
IndexMundi.com: Sugar Futures End of Day Settlement Price (6 months)
IndexMundi.com: Sugar Futures End of Day Settlement Price (12 months)
IndexMundi.com: Sugar Futures End of Day Settlement Price (5 years)
IndexMundi.com: Cocoa beans Monthly Price – New Zealand Dollar per Metric Ton (6 months)
IndexMundi.com: Cocoa beans Monthly Price – New Zealand Dollar per Metric Ton (12 months)
IndexMundi.com: Cocoa beans Monthly Price – New Zealand Dollar per Metric Ton (5 years)
Reserve Bank: Inflation 1990-2014
Trading Economics: Inflation 2010 – 2015
NBR: Kraft Foods (NZ) pays $40m dividend to parent Mondelez
Wikipedia: Acquisition by Kraft Foods
This blogpost was first published on The Daily Blog on 24 February 2015.
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Radio NZ: Focus on Politics for 21 February 2014
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– Focus on Politics –
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– Friday 21 February 2014 –
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– Brent Edwards –
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A weekly analysis of significant political issues.
Friday after 6:30pm and Saturday at 5:10pm
Disagreement about how to reduce poverty and inequality is looming as one of the big debates of election year.
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Click to listen: Focus on Politics for 21 February 2014 ( 16′ 38″ )
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Jobs up, jobless down?
Two articles in the Dominion Post today (7 October) seem to suggest that unemployment was on it’s way down and that the country was witnessing a growth in jobs,
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The article states that “more than 4000 people came off the unemployment benefit and more than 2200 youths came off welfare, including 351 youths who came the unemployment benefit.”
However, the article continues with this, “Bennett said the total number of people on welfare remained high, rising by 0.1 per cent in September to 328,496.”
So, the reality is that a certain number of those 4,000 people who “ came off the unemployment benefit ” may well have moved on to another benefit? Because that is what Bennett is saying, quite clearly, ” the total number of people on welfare … [rose] by 0.1 per cent in September to 328,496 “.
The article also does not state where those 2200 youths who “came off welfare ” went. Did they find employment? Is is full time or part time – and if the latter, are their wages still being subsidised by WINZ? Have they move “side ways” onto another benefit? Are they in training/education, or one of WINZ’s many, ultimately-futile “training” programmes?
The story simply does not enlighten us.
Paula Bennett’s comment here may be somewhat less-than-helpful,
“Job hunting isn’t easy, but it’s fair to say that if you’re not looking, you won’t find a job…”
Thank you, Paula, you’re a real fountain of wisdom.
The second Dominion Post article is also vague and contradictory,
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The article states “SEEK Employment Index rose half a per cent in the last month, showing the new jobs listed on the employment website have grown faster than job applications.”
But then continues with “when seasonally adjusted, the index actually fell by 1.1 per cent in September…”.
It also seems bizarre to read that, “The five most sought category of employees in September were accounting, government and defence, healthcare and medical; engineering and automotive trades. ”
“Government and defence”?
This seems clearly at odds with current government policy of curring back the civil service. The military and other government sectors have lost at least 2000 workers, with more job losses planned.
The above articles may sound optimistic, but redundancies are still hitting our economy and impacting on society,
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The question that springs to mind is that if the drop in unemployed is real – is it due to new jobs or new job vacancies? The difference may seem subtle, but is very real. New jobs are an indicator that the economy is beginning to grow again.
Job vacancies are existing jobs that have been vacated for one reason or another, and are being replaced. It is sometimes referred to as “churn“.
With current wages low and not keeping pace with inflation and the recent increase in gst, it is hardly surprising that most New Zealanders have had the lowest wage increases in a decade,
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By contrast, we had somewhat more generous wage increases during the previous, unfairly-maligned, Labour Government,
“Wage growth at a record high
Annual wage growth in the adjusted LCI (which measures changes in pay rates for a fixed set of jobs and excludes performance related pay increases) remained steady at 3.4% in the March 2008 quarter. This is the equal highest rate recorded since the LCI began in 1992 matching the annual increase for the December 2007 year.
The unadjusted LCI (which includes performance related pay increases) shows annual wage growth of 5.4% in the March 2008 quarter, up from 5.0% at December 2007.
Annual wage growth in the QES (which includes performance related pay increases and is affected by the composition of employment) increased to 4.6% for the year to March 2008, up from 4.1% in the previous quarter.” Source
Good times, eh, my fellow New Zealanders?
Despite John Key’s priority-pledge to raise wages – and not just by 38 cents!!! – we now have a record flight of New Zealanders moving to Australia – 3300!
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As Ms Visser said,
“It’s definitely a wake-up call – with 20 per cent of our workforce looking to leave at any one time it’s a scary thought. “
Which indicates that this current government has done very little of practical value to motivate New Zealanders to stay and help build our own economy. Two tax cuts have certainly not worked the “magic” that Key, English, et al, had hoped.
Which suggests that Bill English’s May 2011 Budget statement, promising 170,000 new jobs may be a tad over-optimistic.,
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I guess the ‘moral’ of this piece is two-fold,
- Be cautious about media stories that do not present the full story. A bit of ‘digging’ soon yields a fuller picture.
- Be cautious about politicians who promise you the world (you’ll be the one paying for it).
And I’ll finish this piece with a message from our Prime Minister, John Key,
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"The billboard also highlights Labour's failure to stem the tide of people voting with their feet and leaving New Zealand." - John Key, 1 Sept 2008
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Additional reading
Inflation outpaces income growth
Bill English: Focus on Finance – Budget 2011
Labour Market Reports – Archive Wage Growth – March 2008 Quarter
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