Data provided by McGregor BFA
All data is delayed
Loading...
See More

Want a chocolate fix? Prepare to pay more

Sep 13 2013 12:21 Reuters
restaurants chocolate cape town

Chocoholics are set to munch through about 7.4 million tonnes of the confectionary in 2013.

Related Articles

Life of a debt addict

Lindt loses Easter bunny trademark case

Economics of cocoa

Nestle, Mars accused of price-fixing

Cadbury accused of tax evasion

Uncertainty after chocolate mogul's death

 
New York - Chocoholics may have to dig deeper to pay for their favourite treat this festive season as sweet makers face sky-high prices for cocoa butter, the special ingredient that gives chocolate its melt-in-the-mouth texture.

Increased demand from Asia's expanding middle class and a turnaround in sales in big consuming countries have seen butter prices nearly double to more than $7 000 a tonne from $4 000 a tonne six months ago.

With supplies tightening and demand showing no sign of slowing ahead of the Christmas and New Year period, some chocolate makers may have little choice but to pass on the increased costs to consumers.

In the secretive industry, which has only a handful of big players, chocolatiers tightly guard the recipes that distinguish their products, and are equally cautious on prices.

Major sweet makers contacted by Reuters declined to comment on whether the butter price hike would lead them to raise the retail price for their chocolate bars, although Nestle said any increase in price is always the last resort.

But some smaller chocolate makers have already pushed up prices.

"We have increased our chocolate prices by 30 to 40% since January and most of our customers are not happy about it," said Richard Lee, chief executive officer of Aalst Chocolate, a Singapore-based chocolatier that sells chocolate to bakeries, ice cream makers and food manufacturers

"With the festive season just around the corner, the price of (cocoa butter) will rise even further and surely hit the bottom line of chocolate makers," he said.

Appetite growing

Chocolate lovers are set to munch through about 7.4 million tonnes of the confectionary in 2013, up nearly 2% on a year earlier and worth about $110bn, according to global market researcher Euromonitor International.

That's up from about 6.9 million tonnes in 2009, when consumption dipped due to the global financial crisis, with demand being driven by growing affluence in emerging nations.

"In the regions like Asia-Pacific or Latin America, we are seeing more middle class consumers buying chocolates compared with five or six years ago because they have the money to do it," said Francisco Redruello, senior food analyst at Euromonitor International.

"That is what's driven the growth of chocolates."

At the same time, sales normally surge in Europe and North America around Christmas, Valentine's Day and Easter, putting pressure on confectionary companies to stock up.

"Trying to find uncommitted, accessible large volumes of butter that's available from now through December, it's problematic," said Jeff Rasinski, corporate director of procurement for Blommer Chocolate, the biggest grinder in North America.

Companies that have not already booked butter for the next few months will be the most vulnerable to price increases, said Rasinski.

Tight supplies

Cocoa beans are ground to produce roughly equal parts of cocoa butter and cocoa powder, which is also used in chocolate bars, as well as for lower quality uses in biscuits, ice cream and drinks.

Strong demand for butter for premium products and an over-expansion by grinders created left-over mountains of powder, forcing grinders to cut capacity last year and leading to a sharp drop in butter supply.

The so-called "butter ratio", which is used to determine prices for the product has soared to five-year highs.

The butter ratio is set by the grinder, depending on supply and demand, and multiplied by the London or New York cocoa futures price to determine the price of cocoa butter.

The ratio is currently at about 2.9 in the United States, compared with about 1.0 a year-and-a-half ago, while cocoa bean prices have also jumped.

Ratios and futures usually move in opposite directions, evening out butter prices swings, but butter has refused to fall even as London and New York bean futures rallied to a 1-year high this month on concerns over output in top producer Ivory Coast and worries about a global bean deficit.

At present prices, butter accounts for about $7 of the cost of a kilogram of chocolate.

The strong demand may give grinders more bargaining power, selling butter only to buyers who also are willing to take powder as well.

But for now the focus is on limited butter supplies.

Barry Callebaut, the world's biggest industrial chocolate maker which sells to Unilever, Nestle, Mondelez and Hershey Co, indicated that price adjustments were sometimes inevitable.

"Most prices our customers pay for our products do move as do the raw material market prices," said spokesman Raphael Wermuth in an email, without elaborating.

In Asia, prices for some chocolate products have already risen, and industry experts say more are expected.

A Singapore-based French chocolatier, who also sells gourmet chocolate bars, chocolate cookies and lollipops online said: "The management wants to increase the price but we haven't done it yet. Butter prices have become so high".

Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.

NEXT ON FIN24X

 
 
 

Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
4 comments
Add your comment
Comment 0 characters remaining
 

Company Snapshot

We're Talking About: Small Business

Standard Bank is looking for 12 entrepreneurs to participate in a 10-part TV series. They could win a R1m investment into their dream.
 
 

Zuma: Pray for peaceful polls

President Jacob Zuma has asked members of the Universal Church of the Kingdom of God to pray for peaceful elections on 7 May.

 
 

Latest elections multimedia

Why Jack Parow wants you to vote on 7 May
The ad the SABC doesn't want to air
Elections 2014 in one cartoon
This year's election posters

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...
Loading...