Bitter Chocolate: Roaring cocoa prices may make dessert more expensive

Indian cocoa bean prices have touched a record Rs 650 per kg, triggered by surging rates in the global market. Local prices are up 200 percent from a year ago, when the rates ranged between Rs 200 and 220 per kg.

The rampant rise in cocoa prices have left chocolate companies in the country with no choice but to raise the prices of their products.

The hike is likely to be reflected in one or two months as chocolate makers are still debating on the extent of the price hike, while waiting for competitors to make the first move.

Indian cocoa bean prices have touched a record Rs 650 per kg, triggered by surging rates in the global market. Local prices are up 200 percent from a year ago, when the rates ranged between Rs 200 and 220 per kg.

Global cocoa futures prices are hovering at around $7,000 per tonne, a roughly 150 percent increase in a year, due to production plummeting in Ivory Coast and Ghana, the two biggest cocoa producers, because of inclement weather and diseases.

Prices are hitting new highs every day, and if the situation continues, it is widely speculated that they may reach closer to $10,000 per tonne.

It is the smaller companies who are feeling the pinch as multinationals, with their large inventory, are able to deal with the situation better.

``Usually, competition makes domestic chocolate companies look at measures like reduction in the grammage and lower production, and go for a price hike only as a last resort. But cocoa prices have escalated so much that a price hike may be the only solution,’’ said Renny Jacob, Chairman and Managing Director of Cacobean Chocolate Factory, which supplies to major brands. After the company’s present stock is over, Jacob said he will have to re-negotiate the prices for the fresh contracts.

The makers of premium dark chocolates and their variants are more affected since they use more cocoa. Chocolate companies are in a dilemma as they have not confronted such volatile prices before. Vikas Temani, Founder and Business Head of the decade-old Paul and Mike chocolates, said they are facing the twin problems of poor availability of cocoa beans, and historic high prices.

``We decided on a 5 percent hike in chocolate prices two months ago. But by the time we decided to roll it out, the cocoa prices had soared to such a level that we found the hike inadequate. Now we are debating on whether to increase it by 10 or 20 percent. We hope to take a decision in a couple of weeks,’’ he said.

The company sells both online and offline a wide variety of chocolates, including dark, milk, and vegan, and uses premium cocoa butter. ``The percentage of cocoa we use in our dark and milk chocolates is more than what many other companies do. But we have to maintain a balance and make sure that the hike is not so hefty as to affect sales,’’ he said.

With growing chocolate consumption, the domestic cocoa production of about 30,000 tonnes is not enough to meet local demand, which is estimated to have touched 1.5 lakh tonnes.

The consumption is not confined to chocolates, but includes cakes, biscuits, and ice-creams. In FY22-23, India imported 1.28 lakh tonnes of cocoa products to bridge the widening gap between supply and demand. Chocolate consumption is growing at about 10 percent annually in the country.

Most chocolate makers in India import cocoa products such as cocoa mass (pure chocolate) <added>, powder, and butter, instead of buying the beans from overseas and processing them as the latter attracts heavy duties. But now, imports have also become expensive.

``Imported cocoa powder is available at Rs 725 per kg. Prices have more than doubled, from Rs 250 to 325 per kg last year,’’ said chocolate industry consultant Madhu Deshmukh. Smaller companies use chocolate compounds that include vegetable fat in place of expensive cocoa butter. ``But they still need cocoa powder for making the compounds, which is costly now,’’ he added.

``We are watching the situation and may have to hike the prices of products, particularly dark chocolates made from imported cocoa,’’ said a senior executive of a large Indian company

Most chocolate companies have rolled out small price hikes in the last few months, but are undecided on the future course of action as the rise in cocoa prices continues unabated.

“We continue to buy cocoa beans from the local market and may hike the prices of our products in accordance with the situation,“ said H M Krishna Kumar, MD of Campco, a major player in the Indian market. The company purchases around 5,000 tonnes of beans annually, and produces 4,000 tonnes of cocoa mass.

Some firms are curtailing production to tide over the situation. ``We have stopped our B2B business, in which we used to supply around 100 tonnes of bulk cocoa products. We haven’t changed the MRP of our chocolates. We are looking at other options, like reduction in grammage,’’ said Y V S Siva Prasad, Manager, Lotus Chocolates.

It appears that the high prices may continue this year as the International Cocoa Organization (ICCO) has projected a deficit of 3,74,000 tonnes for the cocoa year 2023-24 (October-September), compared with 74,000 tonnes in the previous year. It has forecast a global cocoa production of 4.45 million tonnes for 2023-24, an 11 percent decrease year-on-year. Consumption is projected at 4.78 million tonnes, a drop of about 5 percent from the previous year.

One fallout of the current situation is that record prices may prompt more farmers to get into cocoa cultivation. “The cocoa plant will be ready for harvest in a couple of years. A price of Rs 300 per kg is profitable for the farmer, considering the current cost of production,“ said Thomas Thottungal, a cocoa farmer from Kerala.

Andhra Pradesh and Kerala are the two top producers of cocoa in the country. The new harvesting season is expected to begin in April. “We are expecting a good crop if we get a few summer showers,” he said.