Cocoa Processing
innovation I
cocoa crisis is an opportunity for
Cocoa prices soar as supply dwindles due to poor harvests in West Africa, forcing chocolate manufacturers to consider alternative ingredients and strategies amid a looming industry crisis. Andy Fleming, Chief Commercial Officer, IRCA Group explores all the options available.
t’s 200 years since chocolate was a luxury that only the rich could afford. These days we take it for granted – but with cocoa prices skyrocketing, confectioners are being forced to draw up alternative plans. Three years of disappointing
harvests in Ghana and Ivory Coast are pushing prices towards $10,000 a ton. Cocoa’s value on London’s financial markets has practically trebled in a year. This could be the result of climate change causing weather variations in West Africa, or it might be a consequence of decades of underinvestment. Farmers abandoning their ageing, diseased cocoa trees to plant new ones elsewhere, or switching to easier crops entirely. Whatever the cause may be, there’s no doubt that the industry is in crisis. In normal times, Cocoa processors turn out cocoa butter and cocoa liquor for chocolate-makers on demand. But with prices so high, there is a hesitancy from processors and the large FMCG companies.
From my vantage point at IRCA Group, an Italian-based international leader in chocolate, creams and high-quality ingredients, I know from experience that the crisis is driven by a multitude of factors. Fundamentally, however,
18 Kennedy’s Confection April 2024
it’s a supply and demand issue. A fourth bad harvest looks likely in the two countries that produce 60% of the world’s cocoa. Demand remains stable with moderate growth, but supply is falling catastrophically. In fact, cocoa markets haven’t seen such an enormous deficit for half a century. According to the International Cocoa Organisation’s most recent estimate, that amounts to 374,000 tonnes. In the meantime, as stocks decline and prices soar, manufacturers use traditional hedging mechanisms to protect their pricing and margins. However, does that mean that everyone who has a forward contract will be supplied? Will a financial and commercial risk materialise as a physical risk? The impact of the soaring commodity price hasn’t been felt completely. Manufacturers and consumers are insulated
to some degree because of hedging from anything from eight to 16 months. But this is going to come home to roost, as these prices will hit at some point.
The important question is who reacts
first. Will consumers wait and see what food companies do, then respond accordingly? Or will manufacturers draw up alternative tactics, rather than passing the costs on to their customers? It all depends on the company.
Some will simply say, “This is the price we have,” - therefore they will put their prices up. I would expect premium chocolate brands to do this, as they may be very reluctant to change their proposition. Hence, the consumer will have to pay more. But for some of the more mainstay brands and private labels, that’s not such an easy decision. If prices go up, consumers will simply choose something else instead. That
If there is going to be a bunfight for available chocolate in the market there may also be a secondary impact to
sustainability and traceability”
KennedysConfection.com
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