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Henry M. Robert

The price for chocolate to go up?

Experts predict a worldwide shortage of cocoa beans due to demand surge
2 August, 2011 - 00:00

According to the data provided by the International Research Company TNS, an average Ukrainian eats approximately two kilograms of chocolate, which is 2-2.5 times less than the amount consumed by a typical Eastern European.

The world consumption of chocolate is increasing. It is very likely that in 2011-12 crop years, the supply and demand will be balanced, but there is an emerging threat of a new worldwide chocolate deficit starting the year after. This disappointing forecast was recently published by the International Cocoa Organization (ICCO).

ICCO experts notify that according to the data provided by the Bloomberg analytical agency, in 2011-12 crop years starting in October, the consumption volume of cocoa is going to reach 3.9 million tons while its production volume totals 4.03 million tons in the current year. According to the ICCO, narrowing of the gap between demand and supply will cause the prices to go up. “The reduction of the positive gap between supply and demand may cause the increase in prices for cocoa, which have dropped by 17 percent since March. That is when a 32-year maximum was recorded, equaling 3,775 dollars per ton and caused by the political instability in Cote d’Ivoire,” Jean-Marc Anga, the ICCO Executive Director, says. “But the growth will only start from 2012, so by the end of 2011 cocoa is more likely to be sold anywhere from 3,000 to 3,100 dollars per ton.”

Instead, Masterforex-V Trading Academy experts are convinced that the prices on the world cocoa market can go down due to the growth of the world reserves. According to the recent official statements made by the President of Venezuela Hugo Chavez, the government of this country intends to make cocoa their main strategic product. It is planned to double or even triple the cocoa beans’ production in the next seven years. Thereupon, the production of cocoa is to rise from 20 to 30 thousand tons in 2012 to 60 thousand tons in 2019.

Meanwhile, Ukrainian analysts say it is quite hard to predict the way the cocoa prices are going to fluctuate in the near future. That is because lately the cocoa market has become poorly predictable, due to the political instability in the cocoa-producing countries. According to the data provided by Ukrinform, last year the prices for cocoa beans went up by 23 percent, due to some “political” factors. This year, according to experts’ opinion, this tendency will keep on.

However, domestic confectioners stated to The Day that Ukrainians, who are fond of chocolate, have nothing to worry about. According to Hennadii Radchenko, director of corporate communications Nestle-Ukraine, the worldwide cocoa price increase is definitely a significant factor for the Ukrainian candy manufacturers, but it is by far not the main one.

“Today the price of a confectionary industry product is affected by a number of very strong factors. Those are the increase of fuel price, which leads to the increase in the cost of logistic infrastructure and increment of tax load, salary growth and, of course, the raw product (especially sugar) price escalation,” Radchenko tells The Day.

Still the expert assures that confectioners are doing their best to keep the prices for their products stable, although it is very hard these days. “So, last year we bought as much sugar as possible. We made a kind of strategic reserve to keep ourselves from its price escalation this year,” Radchenko shares.

According to him, such efforts in keeping the prices for “sweet” products are caused not by the low purchasing power of Ukrainians as it may seem at a glance, but a high level of competition on this market. “The Ukrainian chocolate market is quite civilized, though it is rather tough. Competition here is a very strong player, which in fact plays on the consumer’s side,” Radchenko says. There’s some vigorous strife going on among the confectionary manufacturers for a market niche, expert says, and the price is virtually the key trump in this “game.” “The manufacturers nowadays are struggling not to increase the price,” Radchenko told The Day.

However, it is true that there are some other “trumps,” which an owner of a confectionery business willing to grow on the Ukrainian market should possess. First of all, comes the active marketing policy. According to Radchenko, thanks to the correct marketing strategy, advertisement and introduction of quality brands, a company can provide itself with a nice growth rate on the Ukrainian market. All the more so, during recent years Ukrainians have shown the increase of cocoa and chocolate demand, the expert underlines.

It should be noted that the production of chocolate, as well as its consumption, started to grow quite recently, only one year ago. The growth rate went up by six percent in 2010 comparing to the previous year. According to the data provided by the State Statistics Committee of Ukraine, the production of chocolate in December, 2010 was 40,300 tons, which is 6.5 percent more than in November of the same year and 8.1 percent more than in December, 2009.

According to the analysts of the domestic chocolate market, today this segment has broad prospects for further development, and not due to the export alone (because experts consider Ukrainian production to be of top quality and able to compete on the EU markets. – Author), but first of all because of using the strength of the domestic market. The existing level of chocolate consumption per capita is still quite low even comparing to the neighboring countries. As it was mentioned at the beginning, according to the International Research Company TNS, an average Ukrainian eats approximately two kilograms of chocolate, which is much less than an average European does. In comparison, in Russia this “chocolate” index equals five kilograms. In Western Europe and the US it is five to six kilograms of chocolate per year. And an average Swiss consumes more than 13 kilograms of chocolate per year.

By Alla DUBROVYK, The Day