Daily Management Review

Chocolate May Not Be Cheaper For Fans Despite Predicted Drop In Cocoa Prices


Chocolate May Not Be Cheaper For Fans Despite Predicted Drop In Cocoa Prices
Despite a predicted fall in the prices of coca this year, it will potentially not benefit the fans of chocolate.  
According to a pool of London cocoa futures conducted by the new agency Reuters and published on Monday, by the end of the year, the prices of cocoa will go down by about 10 per cent due to an expected increase in production as well as an anticipated hit of demand in chocolate because of the novel coronavirus pandemic.
However the reduction in prices of cocoa will not necessarily result in cheaper chocolate bars partly because the price of cocoa is only one of the many ingredients in the mix of a chocolate bar that ultimately decides on the retail price of a bar.
Impulse buying of chocolates was subdued during the height of the pandemic and lockdowns as people were more focused on purchasing and stocking essential items. On the other hand, the bleak economic forecast of a global recession is also expected to dampen future demand for luxuries such as chocolate. Experts and analysts also predict that the sale of chocolate during celebrations such as Halloween will be weaker than normal.
The final price of a bar of chocolate is dependent on a host of costs for ingredients in addition to only cocoa. The additional costs include prices of other ingredients such as sugar and sometimes milk or nuts as well as packaging, marketing, transportation, taxes and retailer margins. Hence the cost of cocoa is just one element that has any influence on the ultimate price of chocolate bars.
The futures markets in London and New York is not generally the place from where chocolate makers buy their cocoa. Instead these future markets attract cocoa which meets the futures contracts’ specifications but is generally not of high enough quality as desired by chocolate makers for many of their products.
The chocolate makers instead go to the actual physical market to get their desired quality of cocoa for which they usually end up paying a premium for the raw material for chocolate. For the forthcoming cocoa season of 2020/2021, which starts on October 1, manufacturer of chocolates will also be required to pay an additional $400 a tonne of cocoa form the top producers in Ivory Coast and Ghana. This additional amount will be paid s a part of a plan to address poverty related issue faced by cocoa farmers.
It is a trend in the chocolate industry that manufacturers do not alter the price of a product but instead bring in changes to the size or quality of the product to adjust to the price changes.
For example, in 2016, larger gaps between the triangles of certain sized bars were introduced in Toblerone by the manufacturing company to adjust to the cost of ingredients. The company later went back of the original size after the price shock was over.
Manufacturers of chocolates can also make more subtle changes to their product in the case of price shocks such as a thinning or thickening the chocolate coating on some confectionery products