Thursday, February 17, 2011

Cereal Killers: Commodities and Mallorca's prices

Here's some bad news if you're someone who likes his or her morning fix of lard and sugar. Or news that you will be totally indifferent towards if you don't. The price of the ensaïmada is on the rise. I'm firmly in the indifference camp. They can charge what they like. I'm not buying anyway.

The ensaïmada may not qualify as a basic necessity of life, though for some it may do. Bread, on the other hand. Meat, too. Coffee? A questionable necessity, but something most cannot do without. What do they all have in common? They are all getting more expensive. Why? The price of commodities.

Strange to report, but ensaïmadas don't grow on trees. There aren't groves of these coiled frisbees hovering from branches in the late-winter breezes around Soller, and spreading sugary blossom. The ensaïmada doesn't come from anywhere, but a key ingredient does. The cereal for its flour. Coffee does not get pumped out of wells from fincas around Mallorca. It isn't expresso-ed from industrial Gaggias and transported in tankers. It comes in the form of a bean. Cereals, beans. Commodities.

The cost of cereals has risen to the extent that the price in the bar or the shop of the ensaïmada or bread may be affected by as much as a 20% increase. Meat is also affected, thanks to the increased cost of animal feed that includes a mix of grain. The rising cost of bread is aggravating a trend in the Balearics that has seen bread consumption fall significantly in the past decade. Per person, this consumption is half that of some other parts of Spain. The increased cost is clearly not the jam; it is the dripping of fears for the tenability of the local baker's shop.

Commodity prices generally are undergoing a boom time. Much of the reason for this lies with investment on futures markets by fund managers. Not content with having created recession, the bankers are now fuelling inflation and sending prices up thanks to their hedged and derivative mathematical models, and coining it in through the bonus system. The rich get richer and the poor can't afford to be given this day their daily bread. Or ensaïmada.

Cereals and meat may be on the rise, but they're nothing compared with coffee. The highest prices ever are being registered in trading in Kenya. I repeat, highest prices ever. The commodity boom is just one factor, another is poor weather, especially in South America. The price of coffee has been on an upward movement for some while. The current highest prices ever in Nairobi were predated by, for example, a 44% rise in coffee futures between June and September last year.

This doesn't mean a 44% rise in the price of your cortado in the local bar (or you would hope not), but the trading in coffee does have an effect. Obviously it does. The effect filters through the holes of the coffee supply chain to the wholesaler and thence to the shop or café and, naturally enough, to the drinker. Unless, that is, the retailer or the café-owner decides to absorb any rise and see his margin eroded. Or, he may opt for an inferior-grade coffee that is cheaper, but doesn't taste as good.

The rise in commodity prices comes on top of those for fuel and energy. The price on the forecourts has gone up, electricity rose by 10% at the start of this year, gas is also more expensive. Mallorca doesn't exist in isolation - well, actually it does in one respect, which is its own story - and so it is as affected by global trading and by the prices of commodities and oil as anywhere.

There may be an awful lot of coffee in Brazil, some of which has been affected by leaf rust, but there isn't an awful lot of it in Mallorca. In fact there isn't any, other than the awful of it that is drunk. And the price of your morning dose of caffeine and ensaïmada looks as though it might just get higher.


Any comments to andrew@thealcudiaguide.com please.

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