For most food and drink suppliers, the challenge of spiralling commodity costs has passed as world prices have slid back from the historic peaks of last year – though the fall in sterling has dampened the relief for many UK manufacturers.
But confectioners are set to face another year of cost pressure as political instability and lack of investment lead to poor harvests, sending prices skyward. This week the commodity price of cocoa stood at £1,971 per tonne, more than 58% higher than this time last year.
The main cause of the high prices has been industrial action in the Ivory Coast, the world’s largest cocoa producer. This, and mounting political instability, has affected both planting and harvesting.
These difficulties were compounded by the poor quality of many cocoa plants in the country. Cocoa trees have a productive life of about 20 years, but much of the stock is older than this. New plants take several years to produce usable crop, prompting analysts to predict continuing high prices.
Speculation has compounded the cost difficulties faced by manufacturers looking to source cocoa. As cocoa is a much smaller world market than sugar or wheat, it is far easier for commodity speculators to alter the price in the short term, increasing volatility and making forward planning more complex.
Chocolate manufacturers are also contending with a potential rise in the wholesale cost of sugar, after India reduced barriers against imports in the face of a shortfall.
The big three chocolate suppliers – Cadbury, Mars and Nestlé – have not disclosed the extent to which they will be hit by high raw material costs over the next year. Sources within the City, however, are confident Cadbury at least has successfully hedged against most of its exposure to the cocoa market for the year ahead, greatly aiding its prospects of containing costs.
Last year’s efforts to preserve margin led to pack sizes being reduced and prices raised across several leading brands. Cadbury’s sharing-sized Dairy Milk shrank from 250g to 230g, but went up 20% in price to an average of £1.48 in the big four, according to data from the Grocer 33. KitKat multipacks shrank from 10 to 9-packs, while increasing 11% in price to £1.36.
Premium brands and specialist chocolatiers will face the most serious challenge in the year ahead, as they face a squeeze at both ends of the market, analysts warn.
Not only will premium chocolate be hit hardest by increasing commodity costs, due to its higher cocoa content, but the retail environment is increasingly difficult for high-end confectioners.
Shares in Swiss chocolate maker Lindt fell last month after it revealed it had failed to meet its full-year sales targets, due largely to a sharp downturn in sales in the last quarter of 2008. With weak demand, and less brand strength than the mass market, making it tougher to pass on higher costs, life for luxury chocolate makers looks less than sweet in 2009.
But confectioners are set to face another year of cost pressure as political instability and lack of investment lead to poor harvests, sending prices skyward. This week the commodity price of cocoa stood at £1,971 per tonne, more than 58% higher than this time last year.
The main cause of the high prices has been industrial action in the Ivory Coast, the world’s largest cocoa producer. This, and mounting political instability, has affected both planting and harvesting.
These difficulties were compounded by the poor quality of many cocoa plants in the country. Cocoa trees have a productive life of about 20 years, but much of the stock is older than this. New plants take several years to produce usable crop, prompting analysts to predict continuing high prices.
Speculation has compounded the cost difficulties faced by manufacturers looking to source cocoa. As cocoa is a much smaller world market than sugar or wheat, it is far easier for commodity speculators to alter the price in the short term, increasing volatility and making forward planning more complex.
Chocolate manufacturers are also contending with a potential rise in the wholesale cost of sugar, after India reduced barriers against imports in the face of a shortfall.
The big three chocolate suppliers – Cadbury, Mars and Nestlé – have not disclosed the extent to which they will be hit by high raw material costs over the next year. Sources within the City, however, are confident Cadbury at least has successfully hedged against most of its exposure to the cocoa market for the year ahead, greatly aiding its prospects of containing costs.
Last year’s efforts to preserve margin led to pack sizes being reduced and prices raised across several leading brands. Cadbury’s sharing-sized Dairy Milk shrank from 250g to 230g, but went up 20% in price to an average of £1.48 in the big four, according to data from the Grocer 33. KitKat multipacks shrank from 10 to 9-packs, while increasing 11% in price to £1.36.
Premium brands and specialist chocolatiers will face the most serious challenge in the year ahead, as they face a squeeze at both ends of the market, analysts warn.
Not only will premium chocolate be hit hardest by increasing commodity costs, due to its higher cocoa content, but the retail environment is increasingly difficult for high-end confectioners.
Shares in Swiss chocolate maker Lindt fell last month after it revealed it had failed to meet its full-year sales targets, due largely to a sharp downturn in sales in the last quarter of 2008. With weak demand, and less brand strength than the mass market, making it tougher to pass on higher costs, life for luxury chocolate makers looks less than sweet in 2009.
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