Chocolate makers could be travelling a rocky road as the prices of two key ingredients – cocoa and sugar – are expected to remain high in the coming months, according to food and agribusiness banking specialist Rabobank.
Cocoa prices have increased 27 per cent in the past year, along with sugar, which has also been trading at record highs. In recent months, manufacturers have grappled with soaring input prices, resulting in increased costs for chocolate.
And cocoa prices, in particular, may rise even higher, the bank said in its newly-released podcast ‘Sweet Inflation and the Chocolate Factory’.
Pia Piggott, associate analyst for RaboResearch, said global cocoa prices have been on an “upward trajectory” since September last year, as the world heads into a potential third year of cocoa supply deficit because of poor growing conditions in major cocoa-growing regions in West Africa.
“The major production regions – particularly in Ivory Coast – accounts for more than 40 per cent of global cocoa production and have had very wet conditions and flooding, causing rotting and disease in the trees,” explained Piggott.
In addition, Piggot said the emergence of an El Niño weather pattern has added risks to global cocoa production, leading to a price forecast for cocoa to stay at elevated levels into 2024.
Tipping the scales
Piggott said another key ingredient adding to the upward pressure on the cost of chocolate was sugar, which typically accounts for approximately 60 per cent of the weight of an average bar of milk chocolate.
“ICE (Intercontinental Exchange) raw sugar is up 20 per cent year to date, so for manufacturers, if 60 per cent of your goods are sugar, that is a substantial input price increase,” she said.
Piggot added that while a large Brazillian sugar harvest had recently “taken some of the steam out” of international sugar prices, the bank predicts only a “small global surplus” in 2023-24 at 1.5 million metric tonnes.
“We’re expecting that if there’s any increase in the severity of El Niño, that would mean downward revisions to sugar production in various countries and possibly tip the scales back into a global deficit, with more demand than supply,” she said.
“So the potential is for sugar prices to stay quite elevated.”
Half-full
Michael Harvey, senior dairy and food retail analyst, RaboResearch, said on the podcast that a decline from the record and near-record prices seen last year for many dairy commodities and ingredients could provide relief for manufacturer margins.
“This time last year, there wasn’t a lot of milk supply around globally and prices for milk powder and milk solids – which are key ingredients in chocolate – were at near-record highs, but fast forward to where we are now and that broader dairy commodity complex has come back to more normal trading conditions,” he said.
“So that’s something that will be feeding through the supply chain to food manufacturers, and, certainly, for chocolate manufacturers, and our view is that we will have a subdued price environment for those dairy ingredients in the short term.”
Bittersweet ending
The podcast said confectionery manufacturers have been taking steps to offset cost pressures in the system, mindful to avoid “demand destruction” from increased prices, leading to consumers buying less chocolate.
However, there have been clear signs of price inflation in the chocolate category at the retail level over the past year.
Piggot said some of the bestselling chocolate in Australia have seen an increase in price by an estimated 10 to 20 per cent, which could continue if these cost pressures are not relieved.
Meanwhile, Harvey said the latest consumer price index had shown price inflation in the snack and confectionery category, running high at a “double-digit rate”, and the bank closely watched the consumer response to the higher chocolate prices.
“Because there is belt-tightening going on and there’s going to be reduced spending on discretionary products, that might mean a little less chocolate on the go and less impulse purchasing out and about,” he concluded.
“However, consumers will still likely want to have some indulgence and eat chocolate when they are at home.”
