Global Chocolate Shortage Ahead

A chocolate shortage is looming, as drought conditions in cocoa producer Ivory Coast are partly to blame for a tightening of the global supply, while a trend towards eating dark chocolate is creating additional demand.

On store shelves, dark chocolate products are taking more and more prominence, with some stores offering a variety of "strengths" to suit customers who seek a richer chocolate, and those who are in search of an intense chocolate buzz. With additional demand created by these and other more cocoa-heavy products, and world cocoa production down "5.5% on a year-over-year basis from 2005-6000" according to MSN's Moneycentral, MSN also notes that the price of cocoa has risen 44% in about a year and a half.

Although reports of gasoline price hikes tend to suggest that end product prices rise as soon as raw material, chocolate manufacturers manage price and supply, MSN and Bizjournals.com report. With a several month supply on hand and key holidays in mind, companies don't want to scare off customers with poorly timed price increases.

MSN and Bizjournals.com report that on the supply side, Ivory Coast and Ghana, two west African countries, are the heart of cocoa production. Cocoa grows best in a tropical rainforest environment, and right now, Bizjournals.com reports, both countries are in "the worst drought in living memory," and not only is chocolate production down on fully grown trees, but younger trees are completely dying.

A Reuters report published in the Saskatoon, SK Star-Phoenix suggested that the pricing and cocoa on the futures market is also a big factor, especially as large companies with cocoa reserves draw down those reserves during a time of short supply. Nevertheless, Reuters quotes analysts as saying that price rises may be "product-by-product" and not as steep as the situation might suggest.

One analyst pointed to the long-term trend in cocoa prices as motivating chocolate companies to not just raise prices, but to reevaluate their businesses, adjusting how they purchase raw materials and other cost and production factors. Chocolate Lindt & Spruengli of Switzerland, which produces high-end confections, reported "double digit increases in its 2006 profits," but warned that "consumer prices will rise."

Two other factors may make the shortage, predicted to be over 100,000 metric tons in 2007 and possibly as high as 250,000 metric tons according to Reuters, less of a concern to chocoholics in the short term, according to Bizjournals.com. The most important is that the price of chocolate candy is heavy with advertising and packaging costs, but also only about 5% of production is actually high enough quality to be called "'fine' or 'flavor' cocoa." In addition to the drought conditions in Ivory Coast, an analyst talking to Reuters also noted that political instability in the country adds an additional "wild card."

http://articles.moneycentral.msn.com/Investing/Dispatch/WorldChocolateShortageAhead.aspx?GT1=9215

http://www.bizjournals.com/pacific/stories/2007/03/26/daily5.html

http://www.canada.com/saskatoonstarphoenix/news/story.html?id=115001ce-3699-47f3-9bde-a7e8005f6ce6&k=76551