Hundred dollar oil to hit soft drink makers hard

By Neil Merrett

- Last updated on GMT

Related tags: Soft drinks, Soft drink, Carbonated water, Carbon dioxide

As petrol prices temporarily rose above the dreaded $100 per barrel
mark for the first time this week, beverage manufacturers have
revealed their concerns over the possible cost implications for
their operations.

The British Soft Drinks Association (BDSA) said that while rising commodity costs were never welcome, higher oil prices would not only significantly impacted transportation and energy spending, but packaging as well. Plastics - often derived from oil - are currently the most important material for soft drink packaging, with the increased per barrel cost likely to be felt throughout the industry. During 2006, an estimated 68 per cent of carbonated beverages, 93 per cent of bottled water, and about 90 per cent of dilatable products using the product, according to BDSA figures compiled by analyst Zenith International. Liz Bastone, media manager for the BDSA, told that the continued rise in costs oil was undoubtedly therefore leading to further pressures on the margins of beverage manufacturers. "As an innovative industry, soft drinks manufacturers naturally want their production process to be as cost effective as possible,"​ she said. However, she claimed that there was no simple solution for ensuring cost efficiency in beverage packaging, with a possible switch to non-plasitc materials also likely to be problematic. "Alternatives to plastic packaging, such as glass and metals have always been available, but costs of such materials are also rising,"​ she said. "The important issue then, is to focus on how to minimise the packaging used and reduce packaging waste."​ To this end, Bastone claimed that soft drinks manufacturers had reduced the weight of their plastic bottles by about 30 per cent over the last fifteen years. More work was needed though with authorities and governments on encouraging recycling, she added. David Tyson, chief executive of the Packaging and Films Association (PAFA) said that while the increased prices for oil had inevitably resulted in increased costs for plastic byproducts, its effectiveness for use in packaging was not diminished. "There is a balancing situation that comes into effect when manufacturing packaging,"​ he said. "For instance, the energy use needed to process plastic over alternative forms of packaging, or the volume to weight ratio of materials required, are often less."​ He claimed that the current price situation with oil would after all affect the processing of all packaging materials. Tyson added that there remained general uncertainty in the market over whether beverage and food manufacturers will continue to struggle with higher packaging costs over 2008, "More polymers needed for plastic production are expected to come onto the market later this year, withIranalso expected to step up production,"​ he said. "However, the political situation can change overnight making predictions difficult."​ Tyson did concede that a significant reduction in the current level of oil speculation on the commodities market would help food and beverage managers to better manage their packaging costs though.

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