Article: Going nuts for peanuts

There are colloquial expressions in most languages about peanuts, meaning low-value products: peanut valued, monkey nut, monkey meat, etc. However, it is considered a key agricultural product because it may replenish nitrogen in soil, provides quick returns to farmers because their plantations do not require expensive techniques and their nutritional properties make them an excellent food, especially in emerging countries.

Peanuts were originally planted in South America. Spaniards took their seeds to Europe and started to plant them in the eighteenth century, following trends similar to the potato in Central Europe and the UK.

It achieved successful sales due to its flavour and started to be consumed in the US, Asia and Africa in the nineteenth century due to the European influence. US manufacturers started to process it massively after the US Civil War (1860-65), producing oils and butters.

Almonds are the core of new nut products and pistachios, macadamias or pecans may command record prices when demand is peaking. Peanuts are at a minimum price despite being essential in many recipes and a key ingredient in new health proposals.

The multinational company Mars Wrigley is developing ambitious global projects for peanuts, especially for India, China and Brazil.

"The edible nut consumption accounts for over 60% of the total produced volume in the 2019-20 season, which totalled around 50.3 million tonnes, although its trend is changing gradually and crushing activity is increasing," the global procurement officer for nuts of Mars Wrigley, Daniel Whitehouse, explained during the World Peanut Meeting, held between July 7 and 8.

"Although the peanut price is lower compared with almonds or walnuts, their consumption growth was weak. On the other hand, peanuts have two strong points: their consumption level is very resilient to price rise, especially butters. And all governments try to avoid hard tariffs against them during trade conflicts," Whitehouse added.

"Brazil has experienced an extraordinary development of the peanut processing industry thanks to a secure supply and an appetite for peanut flavour. India is a different case. Indian consumption growth is focused on oil. Candies are still at minimum levels compared with the EU and the economic effects of Covid-19 has weakened its demand. In addition, most farmers cannot fulfil the US and European MRL's requests and they are flooding their domestic markets, encouraging snack consumption but not favouring new products," Whitehouse said.

He considered that candy consumption may experience a recovery but middle-class consumers will trust brands with a strong reputation, rather than small domestic manufacturers.

India and China

Peanuts are at the core of the Indian cuisine and consumers keep an eye on them. As a result, processors are accelerating investments in updating factories and lifting production. The Indian lockdown has strengthened the rising consumption trend experienced last year thanks to its abundant supply, the director for quality process of the Indian company Khedut Feeds and Foods, Tushar Thumar, explained

There are several appliances whose success is pushing up demand:

• Traditional snacks such as 'chikki' (peanut candy) and salted peanuts with skin are enjoying rising domestic and international sales.
• Manufacturers are being encouraged by the Indian government, especially to sell in Asian markets due to European restrictions about MRLs.
• Large multinational companies such as Mars, Mondelez and Nestlé are starting to produce peanut-based confectionery in India to meet the rising demand from middle-class consumers. These companies are working directly with growers and the government to improve farming practices and product quality.
• Peanut oil consumption is growing, oil manufacturers taking 30% of the domestic crop. Consumers consider peanut oil to be a healthy food, and demand for cold pressed and virgin product is rising.
• Peanut butter is starting to achieve solid sales, following the European and US health consumption trends.

China is the largest global peanut producer. Peanut oil plays an essential role in the domestic industry, consuming 60% of the total crop. In addition, oil peanut imports grew by 51.6% year-on-year to 194,300 tonnes in 2019. Argentina was the largest origin of peanut oil, with a 48% market share, according to data provided by the general manager of Sinopharm Fortune Way, the edible oil subsidiary of Sinopharma, He Miao.

"Peanuts will be the most sold nut snack in China in the mid-term. Packers are developing low-cost packaging solutions to cut prices," Miao explained.

US market

Peanut is leading US nut butter products, taking three quarters of the total sales. Peanut butter is the key product, taking three-quarters of the produced volume. 

"We hope that peanut-based products expand its consumption growth in the mid-term. US peanut butter exports have been hit by the trade conflict between the US and the EU, Canada filling our gap. However, I am confident that the domestic market will offset falling exports, especially in pet food and health proposals," the global procurement director for nuts, fruit, and vegetables of JM Smucker, Brian Reed, said.

JM Smucker is one of the US leaders in conventional peanut and fruit spreads. It started as a cider processor in 1895.

The UK

British consumption is following similar trends to the US about peanuts. The UK imported 93,000 tonnes of peanut kernels in 20219, 13% of the total in Europe.

Imported processed peanuts and peanut butter reached 37,000 tonnes and 9,100 tonnes, respectively, 12.2% more year-on-year and 5.6% more.

The US origin has been losing ground as a supplier, Argentina and Nicaragua now co-leading sales. Around three-quarters of retail sales are from the four large retailers: Tesco, Sainsbury's, Asda and Morrison. However, Lidl and Aldi are growing quickly and together accounted for 15% of the total sold volume in 2019, according to data provided by the procurement manager of the British nut processor Sun Valley, Peter Robinson.

Peanuts are mainly consumed as salted and unsalted snacks although Millennial consumers are pushing health trends.

Salted peanut snack consumption rose by 5% year-on-year in volume, contrasting with almonds and cashews, which fell by 15% and 11%, respectively.

Spread sales may total USD218 million in 2020. Peanuts will account for around USD50 mln, thanks to a strong rise during the lockdown. "Peanut butter consumption has overtaken the fruit spreads and is expected to reach around USD60 mln in 2025," Robinson explained.

The largest use of peanuts outside the retail is in food ingredients, especially candies. Lockdown and its economic effects have forced consumers to increase peanut purchases in the retail industry. Horeca orders suffered a sharp fall.

In addition, he forecast a complex peanut market in the UK due to regulatory changes once Brexit really came into effect in January 2021.

"However, I am quite optimistic because one-quarter of British consumer may be vegans or vegetarian, leading an authentic revolution for nut sales in the mid-term. Peanut will be a key category in this new scenario," Robinson concluded.

Russia

Russia is becoming a key European peanut consumer. Its market consumed around 150,000 tonnes in 2019, according to the owner of the Russian peanut processor, Aventa Food, Maksim Kazakov.

Confectionery and snacks accounted for 62% and 38% of this volume. Most sales are taking place in the retail sector, which takes around three-quarters of the total volume. 700 retail store chains sell by 55% of groceries in the domestic market. Private brands take 60% of the total snack sales.

"Russia is experiencing a gradual concentration of players. Small stores are losing market share step by step due to a combination of focus on low prices by consumers and a financial squeeze after the sharp fall in oil prices," Kazakov explained.

Traders are still essential to supply peanuts to retailers and processors, accounting for 70% of the total volume. Candy manufacturers and packers only took 19% and 11%, respectively. "11 large buyers purchased 80% of the total imported peanut volume in 2019," Kazakov added.

As a result of a low-price focus, two-thirds of the imported product was raw. "We must understand that the import rise is mostly relying on Russian confectionery exports. Imports have been rising by 10% annually between 2009 and 2019 and confectionery exports by 22% annually, these products being especially successful in emerging markets.

Kazakov concluded that the lockdown and oil crisis have accelerated some previous trends, listed below:

• Panic buying sales during the lockdown.
• Indian sales halted, Russian importers started to negotiate with Brazilian processors.
• Exchange rouble devaluation against US dollar (20% fall in Q2) has forced to close the spot market, imports being based on long-term agreements.
• Store closures have pushed up online sales. "Online snack sales have risen by 300% quarter-on-quarter and candies by 500%."

Conclusion

Peanuts combine the best of all worlds: low prices, healthy, globally accepted flavour… Why is its consumption not rising as rapidly as it could be, increasing revenues for processors and growers? All the speakers at the conference agreed: there are no ambitious promotion campaigns such as those the Almond Board of California, Walnut Board of California or Australian Macadamias are undertaking.

There are many global suppliers and no individual player wants to launch ambitious budgets and projects because they might favour competitors which are not investing any fund in it. This scenario is not going to change in the long-term because new global suppliers such as Uzbekistan, Nicaragua or Brazil are emerging. As a result, industries will have to develop their domestic markets.  

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.