Sagittarius
02-23-2014, 10:14 AM
"Time is running out for the chocolate industry to secure supplies of its most important ingredient, which means cocoa prices are poised to rise.
Demand for chocolate is soaring, driven by consumers in developing markets who find themselves in the middle class and eager to buy the affordable luxury for the first time. "There are hundreds of millions of people emerging into the middle class every year, and they are the chocolate consumers of the future," says Barry Parkin, global head of commodity procurement and sustainability at Mars. "Evidence would suggest that any population that emerges into a middle class will eat chocolate."
The problem: Supplies of cocoa, the key ingredient in chocolate, have been stagnant, despite industry efforts to boost productivity. That means that in a few years, existing cocoa stockpiles will be exhausted and chocolate makers won't have enough beans to satisfy demand.
Cocoa prices on the New York futures market rose 21% last year and are up 8.1% since the start of 2014. On Friday, intraday prices hit a 29-month high of $2,975 per metric ton as traders and investors worried about the supply deficit.
Global demand, which includes a 5% annual increase from China, will outstrip supply at least through 2018, according to market-research firm Euromonitor. Global chocolate sales are expected to climb to 7.5 million tons in 2014, the highest since at least 2008, Euromonitor says.
CANDY MAKERS INCLUDING Mars, the maker of Snickers and Twix, and Nestlé (ticker: NSRGY), home of Kit Kat and Crunch, have poured millions of dollars into research on new cocoa varieties and education for farmers on growing techniques. Nonetheless, cocoa production has slipped since 2011, when output hit a record 4.3 million tons, according to the London-based International Cocoa Organization.
Mars, Hershey (HSY), and other confectionary giants say the world needs to boost cocoa production by about one million tons, or a quarter of current output, by 2020, to avoid a shortage. "Every year, we probably lose about a hundred [candy companies] and gain a hundred [chocolate] companies at our trade show," says Larry Graham, president of the National Confectioners Association, a U.S. industry group. "There's more emphasis on gourmet chocolate and less on the normal sort of candy products. The halo of the health benefits of chocolate, particularly dark chocolate, is helping cocoa demand."
Olam International, one of the world's largest cocoa traders, forecasts that prices must gain about 19.5% from current levels, to about $3,500 a ton, to stimulate farmers to produce more beans. Prices last traded at that level in March 2011. In order for production to be maintained at current levels, Olam says prices must average $3,000 a ton this year. "There's a lot of pressure from the introduction of other crops, such as palm and rubber, that's challenging the land that has already been developed for cocoa," says Kip Walk, director of cocoa and sustainability at Blommer Chocolate, the largest cocoa processor in North America and a supplier to major candy companies, including Hershey.
And even if the industry can expand supplies by a million tons, Walk says, "You've just been able to keep up with demand. That's not even taking into account what China or India could bring to the table."
Demand for chocolate is soaring, driven by consumers in developing markets who find themselves in the middle class and eager to buy the affordable luxury for the first time. "There are hundreds of millions of people emerging into the middle class every year, and they are the chocolate consumers of the future," says Barry Parkin, global head of commodity procurement and sustainability at Mars. "Evidence would suggest that any population that emerges into a middle class will eat chocolate."
The problem: Supplies of cocoa, the key ingredient in chocolate, have been stagnant, despite industry efforts to boost productivity. That means that in a few years, existing cocoa stockpiles will be exhausted and chocolate makers won't have enough beans to satisfy demand.
Cocoa prices on the New York futures market rose 21% last year and are up 8.1% since the start of 2014. On Friday, intraday prices hit a 29-month high of $2,975 per metric ton as traders and investors worried about the supply deficit.
Global demand, which includes a 5% annual increase from China, will outstrip supply at least through 2018, according to market-research firm Euromonitor. Global chocolate sales are expected to climb to 7.5 million tons in 2014, the highest since at least 2008, Euromonitor says.
CANDY MAKERS INCLUDING Mars, the maker of Snickers and Twix, and Nestlé (ticker: NSRGY), home of Kit Kat and Crunch, have poured millions of dollars into research on new cocoa varieties and education for farmers on growing techniques. Nonetheless, cocoa production has slipped since 2011, when output hit a record 4.3 million tons, according to the London-based International Cocoa Organization.
Mars, Hershey (HSY), and other confectionary giants say the world needs to boost cocoa production by about one million tons, or a quarter of current output, by 2020, to avoid a shortage. "Every year, we probably lose about a hundred [candy companies] and gain a hundred [chocolate] companies at our trade show," says Larry Graham, president of the National Confectioners Association, a U.S. industry group. "There's more emphasis on gourmet chocolate and less on the normal sort of candy products. The halo of the health benefits of chocolate, particularly dark chocolate, is helping cocoa demand."
Olam International, one of the world's largest cocoa traders, forecasts that prices must gain about 19.5% from current levels, to about $3,500 a ton, to stimulate farmers to produce more beans. Prices last traded at that level in March 2011. In order for production to be maintained at current levels, Olam says prices must average $3,000 a ton this year. "There's a lot of pressure from the introduction of other crops, such as palm and rubber, that's challenging the land that has already been developed for cocoa," says Kip Walk, director of cocoa and sustainability at Blommer Chocolate, the largest cocoa processor in North America and a supplier to major candy companies, including Hershey.
And even if the industry can expand supplies by a million tons, Walk says, "You've just been able to keep up with demand. That's not even taking into account what China or India could bring to the table."
"You can be young without money but you can't be old without money"
Maggie the Cat from "Cat on a Hot Tin Roof." by Tennessee Williams
Maggie the Cat from "Cat on a Hot Tin Roof." by Tennessee Williams
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