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Posts Tagged ‘Kraft’

Capitalism and the price of chocolate

1 March 2015 2 comments

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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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KONICA MINOLTA DIGITAL CAMERA

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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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KONICA MINOLTA DIGITAL CAMERA

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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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Cadbury blocks get the chop

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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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price of sugar - 7 months

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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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price of sugar - 12 months

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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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price of sugar - 5 years

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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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price of cocoa beans - 6 months

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Twelve months – a 12.26% increase;

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price of cocoa beans - 12 months

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However – over 5 years – a 21.06% drop in price;

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price of cocoa beans - 5 years

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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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trading economics - inflation 2010 - 2014 nz

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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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You’ll have a free market – even if it KILLS you!

4 December 2011 19 comments

This is perhaps the clearest example of neo-liberalism forcing itself on nations that cannot resist the influence of western corporatism – even when it places people at risk from unsafe products,

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Full Story

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Whilst WTO Director-General Pascal Lamy said that Samoa’s enytry into the WTO would  “enable Samoa to participate more fully in the global economy and will provide the country with a predictable and stable basis for growth and development” – Otago Medical School Associate Professor, Nick Wilson,  was less than enthusiastic,

From a public health perspective the decision to allow turkey tails … will fuel the epidemics of obesity, diabetes and cardiovascular disease that are hitting Pacific Island nations.

Mean, a spokesperson for our Trade Minister, Tim Groser, supported lifting the ban.

Trade bans on selected items are unlikely to be effective in addressing obesity and health issues.”

Really?! So if a government allows an unhealthy product to be put on their supermarket shelves; and is then consumed by members of the public – Tim Groser is saying that’s ok?

That sounds like a fairly good rationale for legalising and selling heroin.

After all, it could easily be said that banning heroin is   “unlikely to be effective in addressing …health issues.”

Just what the South Pacific needs: more unhealthy food by-products distributed and sold cheaply, and which will ultimately result in yet more Pacifica peoples dying from obesity-related diseases.

Are we in the West proud of  ourselves, yet?

The greatest irony is that, in the 1970s,  New Zealand fought a diplomatic war against the French to stop atomic weapons-testing in the South Pacific, because of fears that radiation would harm the environment and ourselves.

What is even more obscene is that US corporate interests are quite open in their campaign to market unhealthy, destructive foods to low-income, under-developed societies,

The USA Poultry and Egg Export Council welcomed the end on the ban, telling Bloomberg that it was the “consumers’ right to determine what foods they wish to consume, not the government’s.

Under the guise of “free choice”, corporate interests will peddle their cheap, toxic, foodstuffs to Pacifican people – and will reap profits, whilst local governments pick up the social costs of dealing with diabetes, heart disease, and other obesity-related diseases.

Surely by now, we in the West must be revelling in pride at this accomplishment.

This is the raw, naked face of unfettered free market capitalism that is not bound by morality, nor concerns for human welfare. This is profit-making without due regard to consequences.

And this time, the blood of Pacificans are on our hands as well; “Fiji banned mutton flap imports in 2000 and New Zealand responded by threatening to refer the issue to the World Trade Organisation (WTO).   New Zealand later withdrew plans to approach the WTO and the ban still stands (as of March 2009)”,

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Full Story

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I wonder how we might feel if another nation exported unhealthy products into our country – perhaps targetted at our young people – and we were powerless to stop it?

How would we feel, for example, if all restrictions on alcohol and tobacco products had to be removed at WTO insistence – because companies that manufactured those products were unhappy that their profits were being undermined?

We’d be pretty pissed, I’d guess.

But it’s ok if we do it to another country; to our neighbours in the Pacific?

WTO critics claim the Washington based International Food and Beverage Alliance, formed by Kraft, Coca-Cola and General Mills, is behind the pressure to end food type bans.

“This is not true,” spokeswoman Jane Reid said.

“(The Alliance) has had no involvement whatsoever in this issue.”

Yeah, right.

It is high time that New Zealand led by example and halted the sale of unhealthy meat by-products to our Pacific neighbours. Otherwise we are practically conducting war-by-poor-nutrition against the peoples of the Pacific.

It is time that New Zealand led an international  campaign in the WTO against rules that allow toxic foods to be sold without restraint.

International trade rules that favour corporate “rights” and unfettered trade are anathema to the values that we hold dear.  In the final analysis, governments are responsible for the safety and wellbeing of their peoples – not to corporations and their profits.

Perhaps Tim Grosser; the National Government; the WTO; the International Food and Beverage Alliance; the USA Poultry and Egg Export Council; et al; would care to dine out on mutton flaps and turkey tails for a few years?

I guess not.

After all, they can all afford proper, nutritious food.

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Previous blogpost

Why did the fat kiwi cross the road?

Additional Reading

New Zealand’s impact on health in the South Pacific: scope for improvement?

Trade in Everything: Turkey Tails

Critics challenge exports of mutton flaps, turkey tails and expired eggs to Samoa

Nutrition Facts: Turkey Tail

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