Follow our live coverage here.
SINGAPORE – For soya sauce maker Thomas Pek, the fallout from the Middle East energy crisis has hit local manufacturers here in a far more painful way than recent crises, including the Covid-19 pandemic.
Not only have the costs of his soya sauce bottles and bottle caps skyrocketed since oil supply disruptions wrought havoc on prices of polyethylene terephthalate (PET) resin – a key material for plastic bottles that is made from crude oil – but his production costs and transportation costs have also surged on higher diesel prices.
“During the pandemic, our costs did not increase so much. Back then, we exported less to maintain food security here. But this crisis is worse than the pandemic. All our costs from packaging to transportation, production, delivery, freight and shipping insurance have increased,” said Mr Pek, managing director of Tai Hua Food Industries.
Even though industry diesel, which Tai Hua buys directly from oil refineries in Singapore, has jumped from $1.20 a litre in late February to $3 a litre on April 10, Mr Pek has not raised his soya sauce prices yet.
But he may have to raise prices by 10 per cent to 15 per cent from May, as the PET resin shortage and high prices of diesel – which powers Tai Hua’s boilers to steam soya beans and cook soya sauce – could persist, given that the damage to vital energy infrastructure in the Middle East will take years to fix.
Diesel powers road freight, agricultural machinery, construction equipment, rail and a large part of industrial activity. Hence, shortages of diesel will raise the costs of freight, food production and industrial output, while shortages of petrochemical feedstock, which are used in the manufacturing of plastics, can lift packaging costs and, in turn, the costs of certain processed food.
“This is even more severe than the pandemic because the oil shock affects everything. But we have not seen the full impact of the crisis yet,” Mr Raymond Tan, president of Singapore Food Manufacturers’ Association (SFMA) told The Straits Times.
“There’s no big price increase for food products yet because manufacturers have been absorbing the increased costs, and tapping ingredients and packaging materials secured before the war. But once these stocks are depleted, and new orders of ingredients and packaging materials are made, that’s when the full impact will kick in,” he said.
Mr Pek added: “Our soya sauce bottle costs and cap costs increased 8 per cent in March, and then another 15 per cent in April, but we have been absorbing this. Because we export soya sauce to the Middle East, Holland and Mexico, our freight costs and shipping insurance will also be increasing.”
Meanwhile, fertiliser production costs have skyrocketed because nitrogen fertilisers are natural gas-intensive products.
With the Middle East accounting for about 30 per cent of global fertiliser trade, shipment disruptions from the region have resulted in global prices of urea, a form of nitrogen fertiliser that farmers normally use, rising more than 35 per cent over the past month.
Compounding the shortages, trade restrictions by China and Russia are tightening global fertiliser supply, particularly for import-dependent countries in Asia and Australia, according to ANZ Research.
Besides tighter availability, higher fertiliser and energy prices have lifted production costs, which could lead to a reduced planting area along with lower fertiliser application, which could result in less bountiful harvests, increasing the risk for food inflation, the research house said.
