Food manufacturers fret as Iran war sends diesel, logistics, packaging cost soaring

[SINGAPORE] Already under pressure from sharply rising energy, logistics and raw material costs due to the conflict in the Middle East, Singapore’s food manufacturers are bracing for more headwinds – such as higher natural gas and electricity prices – in upcoming months.

The war has shut down the Strait of Hormuz, a critical channel for around 20 per cent of the world’s oil and liquefied natural gas supplies, pushing up energy prices. 

This in turn wreaked havoc on packaging supply chains by disrupting the supply and export of naphtha which is used to produce plastics, including those used for food packaging.

Shipping routes and schedules have also been upended, introducing even more uncertainty in global supply chains.

The food manufacturing industry, one of Singapore’s fastest growing sectors, is among those keenly affected by the disruption and higher costs.

The sector represents more than 1 per cent of the economy, with a significant proportion of the output exported. 

If the conflict situation in the Middle East does not improve, food manufacturers are likely to have to raise prices, a move that will eventually feed through to inflation.

Diesel price spike

One key reason for this is the steep increase in diesel prices. 

Industrial diesel prices have seen “a very substantial increment”, up by some 90 to 100 per cent, affecting production and transport costs, said Raymond Tan, managing director of noodle manufacturer Tan Seng Kee (TSK) Foods. He is also president of the Singapore Food Manufacturers’ Association (SFMA).

The diesel price spike has had an immediate impact on the cost of operating its boiler, used for manufacturing cooked noodles, he said.

Soya sauce maker Tai Hua Food Industries has seen the price of diesel go up 100 per cent, said its managing director Thomas Pek, affecting the cost of using its boiler to steam soya beans.

Apart from higher production costs, higher diesel prices have also affected the manufacturers’ delivery costs.

Frozen foods manufacturer Tee Yih Jia (TYJ) Food Manufacturing, the world’s largest producer of frozen spring roll pastry, noted: “Rising fuel prices have contributed to higher local delivery costs, logistics and freight costs.”

A spokesman said that there has been greater uncertainty in shipping routes and schedules, resulting in shipment delays and extended transit times.

Smaller-sized enterprises have been affected too. Diesel prices have “increased without warning on a near-daily basis”, placing serious pressure on transport and operational costs, said Audrey Chew, founder of youtiao manufacturer You Tiao Man. By her estimates, diesel-related costs have increased by about 81 per cent overall. 

For dim sum manufacturer Sin Mui Heng (SMH) Food, the “primary impact” of the war in logistics and freight has been on shipping lead times and freight costs, due to redirected routes around the Red Sea, said Johnson Tay, director for strategic planning.

Packaging costs

Food manufacturers are also beginning to feel the impact of higher plastic packaging costs.

When the Middle East war broke out, the supplier for Tai Hua’s plastic bottles immediately hiked prices, said Pek. These suppliers reported low stocks and difficulty in procuring materials, he said.

Said You Tiao Man’s Chew: “Suppliers of raw materials such as plastic packaging and other commodities have also approached us with price increases of around 10 to 20 per cent.”

While SMH Food’s Tay declined to disclose exact percentages, he said the cumulative effect of logistics and freight as well as commodity price increases, combined with existing inflationary pressures since 2023, “has necessitated a closer look at (SMH’s) internal cost management”.

Further deterioration 

While the current situation is already worrying, things could get worse.

Tay said SMH is “bracing for secondary impacts that may not have fully materialised yet”, pointing to continued volatility in energy costs, which could lead to prolonged spikes in utility rates for manufacturing facilities.

In its export markets, shifts in consumer behaviour or local economic stability in the Middle East could affect long-term demand, he added. SMH also has a “significant export presence in the Middle East”.

Tee Yih Jia’s spokesperson noted the government’s warning that electricity costs will increase, especially in a prolonged conflict.

Most manufacturers will be impacted by the electricity price increase, said Tan, adding that natural gas and town gas prices will also be on the rise.

Tai Hua’s boilers can run on both diesel and natural gas. In light of the diesel price surge, the company instructed workers to switch to natural gas – but Tai Hua has since received notice of upcoming price adjustments for the alternative, thus tying their hands, said Pek.

Chew agreed that “what concerns (You Tiao Man) is that some of the full effects may not have surfaced yet”, flagging continued volatility in fuel prices, further increases in raw material costs, and possible supply chain disruptions. 

“These pressures do not just affect margins – they affect our ability to plan, hire, invest and continue serving the community sustainably,” she said.

Six months down the road 

Pek worries that, if nothing changes, Tai Hua will have no choice but to adjust the prices of its products in the next three or six months.

It will not be able to sell at a loss, he said. “Right now, we’re gritting our teeth and maintaining; but if this goes on in the long term, won’t we have to close?”

In the meantime, the manufacturers are doing what they can to weather the storm.

For many, this means optimising production efficiencies and conserving energy to manage cost increases.

SMH is also diversifying its raw material sources to reduce dependency, and balancing its risk profile by strengthening its presence in diverse markets.

To cushion the cost increases, Tan said TSK is trying to “lock in orders and prices of key ingredients and packaging materials”.

The SFMA president called on manufacturers to optimise production scheduling, deploy or expand energy saving solutions, utilise solar energy wherever feasible, and secure forward contracts for key manufacturing inputs if possible. 

Chew hopes consumers will continue to support local businesses as this “helps sustain jobs, preserve capabilities and keep our local business ecosystem alive during uncertain times”.

Pek acknowledged that the government has said it is prepared to roll out support measures should the need arise. Chew hopes it “can step in with timely and practical support measures”, whether through cost relief, targeted assistance, grants or policies”.

“Local businesses want to stand strong, but we need the right conditions and support to keep contributing meaningfully to the economy and community,” she said.