Chocoholics may have to dig deeper to pay for their favorite treats this festive season as confectioners face skyrocketing prices for cocoa butter, the special ingredient that makes chocolate melt in the mouth.
Boosting demand from Asia’s growing middle class and a shift in sales to large consumer countries pushed butter prices to more than $7,000 a tonne, up from $4,000 a tonne six months ago.
With supply constrained and demand showing no signs of slowing ahead of Christmas and New Year, some chocolate makers may have little choice but to pass on the increased costs to consumers.
In a secretive industry, where there are only a few big players, chocolatiers fiercely guard the recipes that distinguish their products and are equally cautious about prices.
The major confectionery maker declined to comment on whether the rise in butter prices would lead to higher retail prices for its chocolate bars, although Nestlé said any price increase was always a last resort.
But some small chocolate makers have already raised prices.
“We have increased the price of our chocolate by 30 to 40 percent since January and most of our customers are not happy about it,” said Richard Lee, chief executive officer of Alst Chocolate, a Singapore-based chocolatier that sells chocolate to bakeries, ice creams, and more. Manufacturers and food manufacturers
“With the festive season just around the corner, (cocoa butter) prices will increase and will definitely hit the bottom line of chocolate makers,” he said.
Hunger is increasing
According to global market researcher Euromonitor International, chocolatiers are set to produce about 7.4 million tons of the confection in 2013, up about 2 percent from a year earlier and worth about $110 billion.
That’s up from about 6.9 million tonnes in 2009, when consumption fell due to the global financial crisis, with demand driven by growing prosperity in emerging countries.
“In regions like Asia-Pacific or Latin America, we see that middle-class consumers are buying more chocolate than five or six years ago because they have the money to do so,” said Francisco Redruello, senior food analyst at Euromonitor International.
“That’s what drove the growth of chocolate.”
At the same time, sales in Europe and North America typically spike around Christmas, Valentine’s Day and Easter, putting pressure on confectionery companies to stock up.
“Trying to find unlimited, accessible large volumes of butter available now through December, it’s problematic,” said Jeff Rasinski, corporate director of procurement at Bloomer Chocolate Co., North America’s largest grinder.
Rasinski said companies that haven’t already booked butter for the next few months will be most vulnerable to price increases.
Cacao beans are ground to produce roughly equal parts of cocoa butter and cocoa powder, which are also used in chocolate bars, as well as for low-grade use in biscuits, ice cream, and beverages.
Strong demand for butter for premium products and over-expansion by grinders has created a mountain of powder left over, forcing grinders to cut capacity last year and a sharp drop in butter supply.
The so-called “butter ratio,” which is used to determine commodity prices, hit a five-year high. The proportion of butter is set by the grinder, depending on supply and demand, and multiplied by the London or New York cocoa futures price to determine the cocoa butter price.
The ratio in the US is now about 2.9, compared to about 1.0 a year and a half ago, when cocoa bean prices also jumped.
Ratios and futures typically move in opposite directions, with butter prices falling later in the evening, but butter has refused to budge as London and New York bean futures hit 1-year highs this month on concerns about output in top producer Ivory Coast. A global bean shortage.
At current prices, butter costs about $7 for a kilogram of chocolate.
Stronger demand may give grinders more bargaining power, selling butter only to buyers who are also willing to take the powder.
But for now the focus is on the limited supply of butter.
Barry Callebaut, the world’s largest industrial chocolate maker that sells to Unilever, Nestle, Mondelez and Hershey Co, indicated that price adjustments were sometimes inevitable.
“The prices our customers pay for our products are driven by market prices for raw materials,” spokesman Raphael Wermuth said 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 sells gourmet chocolate bars, chocolate cookies and lollipops online, said: “Management wants to raise prices but we haven’t yet. The price of butter has gone up so much.”