As the conflict between the United States and Iran continues into its third month, significant food and beverage firms worldwide face disruptions due to the ongoing blockage of the Strait of Hormuz. This crucial waterway is vital for global trade, affecting supply chains and market availability.
In India, shortages of Diet Coke have emerged, attributed primarily to an aluminium supply crunch caused by the tensions in the Middle East. Coca-Cola’s India operations have found themselves unable to cope with the reduced availability of aluminium, which is crucial for the production of cans—Diet Coke is only sold in this format in the Indian market. Some consumers have even resorted to organising ‘Diet Coke parties’ to gain access to the increasingly scarce beverage, with attendees paying entry fees to join the event.
The International Aluminium Institute reports that aluminium, a key component for many packaged goods, is significantly impacted by the ongoing situation—approximately 9% of the global aluminium supply originates from the Middle East. As shipments through the strait are heavily disrupted, prices for aluminium have soared to a four-year high.
The war’s implications extend beyond just aluminium. Before the outbreak of hostilities on 28 February, the Strait of Hormuz facilitated the passage of two-thirds of the world’s oil and around 30% of global fertiliser supplies, as well as other essential petrochemical products. Calbee, a renowned Japanese snack manufacturer, announced it would temporarily simplify its packaging by limiting colour options due to a shortage of naptha, a petrochemical used in ink production. The company has opted to produce black-and-white packaging starting from 25 May, a move reflecting the dire consequences of supply disruption.
Brewing companies in India, particularly Heineken’s subsidiary United Breweries, are also bracing for significant effects. CFO Jorn Kersten noted that packaging materials have been severely affected by rising energy costs linked to the Middle East conflict, prompting the brewer to explore new investments in glass bottles. He expressed concerns about the rising prices of aluminium continuing to strain operations.
Additionally, the brewing industry faces challenges from a potential shortage of carbon dioxide in the UK due to disrupted imports, which could affect beer supplies during the forthcoming World Cup.
The ramifications of the Strait closure have reached other food sectors, such as fruit and sugar supplies. According to Fresh Del Monte Produce CFO Monica Vicente, trade disruptions in the Middle East are exacerbating existing pressures on banana supplies in North America and Europe.
S&P Global noted that roughly 10% of the world’s sugar supply also transits through the Strait of Hormuz, resulting in potential scarcity. While current stock levels may suffice, traders express concern that if the conflict persists, sugar supply issues could worsen significantly.
According to Ben Emons, chief investment officer at Fed Watch Advisors, increased commodity prices and transport costs will have long-term impacts on food prices, particularly on staples like corn, which is reliant on fertilisers. He cautioned that the seeding season is already underway; thus, ongoing issues with supply could lead to future shortages.
In summary, as the geopolitical situation in the Middle East remains volatile, the reverberations are felt globally in various food and beverage sectors. With rising commodity prices, packaging shortages, and potential supply disruptions across a range of items—from beverages to fresh produce—companies must navigate a challenging landscape while consumers may face higher prices and reduced product availability.
