Rising cocoa prices might make Indian chocolates dearer

Therefore, most Indian chocolate makers import products like cocoa powder and cocoa butter free of duty from countries such as Malaysia, Indonesia and Singapore under a free trade agreement.

Spiralling global cocoa prices may compel Indian chocolate makers to pass on the hike to the consumers if the rising trend continues to hold sway in the coming months.

Despite a slight increase in production, Indian cocoa bean prices have risen in tandem with the international prices as the demand remains robust. A few companies have already raised product prices to address the higher cost of production while a majority have refrained from taking the step now.

Cocoa prices have reached record levels over concerns of supply shortage from Ivory Coast, the largest cocoa producer. Ivory Coast, Ghana, Cameroon and Nigeria account for almost 80 percent of the world’s cocoa output.

Indian cocoa production is hardly sufficient to meet the growing demand. As a result, the import of cocoa beans and products has been growing in the last few years. Cocoa bean imports carry a duty of over 30 percent.

Therefore, most Indian chocolate makers import products like cocoa powder and cocoa butter free of duty from countries such as Malaysia, Indonesia and Singapore under a free trade agreement.

These countries import beans from West Africa and make cocoa products for export. This year, expensive beans have increased the cost of these cocoa products, forcing Indian importers to pay a higher price.

"The price increase has affected the makers of pure cocoa chocolate. But the Indian market comprises largely compound chocolate producers who use locally available vegetable fat. The price of fat has come down by half, which has offset the increase in the cocoa bean prices," says Mukesh Sinha, General Manager, Sales and Marketing, Kayampee Foods Pvt. Ltd.

International cocoa futures are ruling around $ 3,400 per tonne now, a 45 percent rise year-on-year. According to the International Cocoa Organisation (ICCO) heavy floods in Ivory Coast could reduce the crop in the latter part of the period October 2022 - September 2023 and its effects could extend to the subsequent season as well. Till July, supplies from Ivory Coast have been 4.3 percent lower compared to the same period in the previous year. In addition,  a late El Nino is also expected to hit production in the next season.

Indian cocoa prices have risen by 20 percent this year to around Rs 250 per kg. The Mangaluru-based cooperative Campco Ltd. is one of the major purchasers of Indian cocoa beans for processing and manufacturing chocolates. "Cocoa production is not much higher than last year. But the prices have gone up due to high demand and rise in international rates. We have hiked the prices of our products marginally by about 5 percent because of the increase in cost," says Krishnakumar H M, MD of Campco Ltd.

As per the data of the Directorate of Cashewnut and Cocoa Development, cocoa production in the country saw a 5 percent increase over the previous year at 29,792 tonnes in 2022-23. This limited increase in production has pushed up the import of cocoa products in the last few years to meet the growing demand for chocolate products.

The import of cocoa and cocoa preparations rose by about 16 percent to 1,28,654 tonnes in 2022-23. Cocoa powder was the main product imported, followed by cocoa beans and cocoa butter and fat. Imports crossed 1 lakh tonnes for the first-time last year.

Apart from Campco, multinationals Mondelez International, the maker of Cadbury chocolates and Nestle also source beans from the local market.

Higher price of beans has made imported cocoa products dearer this year. Cocoa powder prices are up by over 15 percent to Rs 280 per kg while cocoa butter is higher by 8 to 10 percent to around Rs 430 per kg.

However, this may not affect the Indian importers immediately as they usually go by long term contracts. "The chocolate companies usually book imports 6 months to one year in advance. Hence the current surge in prices will not have an immediate effect. But the higher prices if they sustain may affect the imports next year," says Durga Prasad, managing partner, DP Cocoa Products Pvt. Ltd.

Importing cocoa beans by paying heavy duty and making chocolates is not viable for most of the Indian chocolate companies, unless there is export. Most of the chocolate companies prefer buying cocoa products and using locally made fat, which is one-third the price of imported cocoa butter, for making chocolates.

But those who insist on having the real taste of cocoa, prefer imported cocoa butter. Paul and Mike Chocolates, the upcoming chocolate company that produces several varieties of dark chocolates, uses imported cocoa butter with beans procured locally to retain the real flavour of cocoa. The craze for vegan products and increasing health awareness have boosted the sales of dark chocolates after the pandemic. "Our cost of production has increased. But right now, we are not looking at a hike in prices," says Vikas Temani, Founder and Business Head, Paul & Mike Chocolates.