‘Upward trajectory’: Bitter price news for chocolate lovers

Soaring prices for two key ingredients means chocolate lovers may soon have to dig deeper into their pockets for the cherished sweets.

Bitter price news for chocolate lovers

Chocolate lovers may soon have to dig deeper into their pockets as the beloved treat faces the impact of soaring prices for two essential ingredients – cocoa and sugar.

Food and agribusiness banking specialist Rabobank warns these costs are likely to stay elevated in the coming months, putting pressure on chocolate manufacturers worldwide.

According to Rabobank’s newly-released podcast, titled ‘Sweet Inflation and the Chocolate Factory,’ the retail prices of chocolate have steadily climbed in recent months due to surging input prices.

Cocoa, in particular, has seen a staggering 27 per cent increase in the past year, while sugar has been trading at record highs.

Pia Piggott, an associate analyst at RaboResearch, explains that cocoa prices have been on an “upward trajectory” since September last year, leading to concerns about a potential third year of cocoa supply deficit.

Poor growing conditions, especially in major cocoa-growing regions like Ivory Coast, have reduced production due to wet conditions, flooding, and disease in the cocoa trees.

Graph sourced from Bloomberg and Rabobank shows increased global cocoa and sugar prices. Picture: supplied

Reduced use of fertilisers has further contributed to the decline in production.

To make matters worse, the emergence of an El Niño weather pattern poses an additional threat to global cocoa production, leading Rabobank to predict cocoa prices will remain high well into 2024.

Adding to the woes, the high price of sugar, which accounts for about 60 per cent of the weight of an average bar of milk chocolate, is also pressuring manufacturers.

“ICE (Intercontinental Exchange) raw sugar is up 20 per cent year to date, so for manufacturers, if 60 per cent of your goods are sugar, that is a substantial input price increase,” Ms Piggott said.

While expectations of a sizeable Brazilian sugar harvest have provided some relief, Rabobank still expects only a small global surplus in 2023/24, which could sustain elevated sugar prices.

The possibility of an increase in the severity of El Niño could further impact sugar production, potentially leading to a global deficit.

RaboResearch associate analyst Pia Piggott. Picture: Contributed

On a brighter note, Rabobank’s senior dairy and food retail analyst, Michael Harvey, noted some respite concerning dairy prices.

He states that the prices of dairy commodities and ingredients, such as milk powder and milk solids used in chocolate, have declined from their near-record highs seen a year ago.

“This time last year, there wasn’t a lot of milk supply around globally and prices for milk powder and milk solids – which are key ingredients in chocolate – were at near-record highs, but fast forward to where we are now and that broader dairy commodity complex has come back to more normal trading conditions,” he said.

“And our view at the moment is that we are going to have a subdued price environment for those dairy ingredients in the short term.”

Despite the cost pressures faced by confectionery manufacturers, they are taking measures to avoid significant “demand destruction” that might result from consumers buying less chocolate due to higher prices.

Dairy prices may soften the blow.

However, there has been evidence of price inflation in the chocolate category at the retail level, with some favourite chocolates in Australia witnessing price hikes of around 10 to 20 per cent over the past year.

While consumers might be tempted to tighten their belts and cut back on indulgence purchases, Rabobank is closely monitoring the “consumer response” to higher chocolate prices.

Recent Consumer Price Index (CPI) data from May indicates high double-digit price inflation in the snack and confectionery category.

This could lead to reduced spending on discretionary products, potentially impacting impulse purchasing.

Despite the impending challenges, Ms Piggott assures consumers that some bargains can still be found in the chocolate market. “With manufacturers trying to keep market share in the category, they are still putting some of our favourite chocolates on sale to keep us buying them,” she said.