Cocoa prices surge on Asia's chocolate binge

Growth in demand across the region compounds a shortage of the key ingredient, with market tipped to grow at almost twice the global rate

PUBLISHED : Wednesday, 16 July, 2014, 1:15am
UPDATED : Wednesday, 16 July, 2014, 5:07am

Surging consumption of chocolate in Asia is pushing cocoa bean prices to the highest level in three years as buyers including Barry Callebaut expand their search for more supply.

While demand in the region ranked as the world's lowest per capita last year, the market will grow at almost twice the global rate over the next four years, according to researcher Euromonitor International.

Barry Callebaut, the world's largest producer of bulk chocolate, has doubled capacity in Asia since 2009 as Cargill and Archer-Daniels-Midland added bean-processing plants, mainly in No3 world producer Indonesia.

Growth in Asian demand has contributed to a rally in cocoa, the key ingredient for chocolate, which climbed to the highest level since August 2011 in New York. Rising consumption in emerging markets including China and India may spur shortages that extend into the next decade, with the global bean deficit seen reaching 1 million tonnes by 2020, according to Hardman & Co, a London-based research firm.

"In the longer term, the scarcity of quality cocoa is a serious concern for our entire industry," Barry Callebaut chief executive Juergen Steinemann said.

Asia, home to about 3.7 billion people, or more than half the world's population, would be the consumption "powerhouse" for cocoa and chocolate, said Gerard Manley, a managing director at Singapore-based Olam International, which supplies about 10 per cent of world beans.

The shortage would push up prices at least 10 per cent by the end of this year, Manley said.

Cocoa futures soared 14 per cent this year to US$3,083 a tonne in New York and hit US$3,149 on July 3, the loftiest since August 2011.

Consumption of chocolate confectionery in the Asia-Pacific region averaged 200 grams per person last year, less than the Middle East and Africa, according to Euromonitor. Demand expanded 4.5 per cent, the fastest rate in the world and almost six times the global increase of 0.8 per cent.

Barry Callebaut doubled chocolate output capacity in Asia to 90,000 tonnes this year from five years ago and a further increase was possible, said Mikael Neglen, the Asia-Pacific chocolate president. The company spent US$950 million for the cocoa-ingredients unit of Petra Foods.

Bean processors are adding facilities in growing areas to ensure supply, according to Yeong Chye, ADM's Asia cocoa managing director in Singapore, where capacity has quadrupled since 1984, when the plant opened.

United States-based Cargill will start a 70,000-tonne plant in Indonesia this year, its first in Asia.

Olam is starting a facility in Ivory Coast this year and another in Indonesia in 2016. Ivory Coast, Ghana and Indonesia are the top cocoa growers.

Shares of chocolate makers are advancing. Barry Callebaut climbed 34 per cent in the past 12 months, while Mondelez International, based in Illinois, surged 28 per cent. Mondelez owns Cadbury India, which holds a 65 per cent market share in a nation with 1.2 billion people.

The race to process more beans might be premature as demand expanded more slowly than expected, said London-based analyst Caroline Bain of Capital Economics. Increasing prices might also deter purchases in emerging markets that were sensitive to higher costs.

"We're more cautious than a lot of forecasters who assume that European-style consumption levels will be reached relatively soon," Bain said.

Demand in China, ranked 11th in the world in terms of market value, might take more than 10 years to overtake the US, according to Mohamed Elsarky, the chief executive of Godiva, the luxury chocolate maker.

The 88-year-old Belgian firm had opened more than 50 shops in China since 2009 and was seeking to double that in five years, Elsarky said.

The chocolate confectionery market in the Asia-Pacific will expand to US$16.3 billion in 2018, a 23 per cent climb from last year, according to Euromonitor. The world market, dominated by Western Europe and North America, will increase 13 per cent to about US$124 billion.

"The Asia market is growing very fast as people are very fond of chocolate," said Philippe Daue, a fourth-generation Belgian chef who is Godiva's Beijing-based Pacific Rim chef chocolatier. "The availability of cocoa beans to meet the growing demand for chocolate will become all chocolatiers' biggest challenge worldwide."