Euromonitor International’s View on the 2012 World Cocoa Conference: Don’t Panic

Hotel Ivoire’s conference hall proved to be a splendid venue for the inauguration ceremony of the first World Cocoa Conference, held in Abidjan (Ivory Coast) between 19 and 23 November 2012. First and foremost, the conference succeeded in bringing together international chocolate manufacturers, certification agencies, cocoa farmers and politicians from major cocoa producing countries. The consistent theme of the event essentially centred on the need to maintain, if not increase, overall cocoa output in the face of growing demand over the next decade or so.

Seven hundred thousand tonnes more needed until 2017

Farmers, argued politicians from producing countries, will find little or no incentive in passing on their cocoa farms to their offspring at current price levels. New generations will likely shift to more profitable crops like rubber or simply move to better remunerated jobs in cities. Regardless, if chocolate sales to emerging countries continue to grow – the International Cocoa Organisation (ICCO) projects that an additional 700,000 tonnes of cocoa will be needed by 2017 – the ability for supply to meet demand will be seriously endangered.

For their part, international chocolate manufacturers carefully talked around the question of prices during the conference. They preferred emphasising the importance of certification and sustainability schemes as the best way to increase productivity and raise farmers’ incomes. The average cocoa bean yield per hectare in Ivory Coast is less than half a tonne, according to ICCO’s own estimates. More modern production practices such as the introduction of grafting, more extensive use of fertilisers and a more effective use of water resources could easily triple that yield.

Sluggish demand for chocolate in maturing markets

Two different questions lay, in Euromonitor International’s view, at the heart of the World Cocoa Conference’s discussions.

The first revolved around the question of demand. Is demand for cocoa really going to increase by 700,000 tonnes until 2017 as the ICCO predicts? Let’s look at the data first. Volume consumption of cocoa butter is projected to grow by 110,000 tonnes between 2011 and 2016, according to Euromonitor International’s estimates. Cocoa powder will rise by 130,000 tonnes. Unless a spectacular surge in demand in 2017 takes place, the 700,000 tonne increase in demand for cocoa grindings is unlikely to happen at all.

The relatively moderate growth of cocoa butter is explained by sluggish demand for chocolate in mature markets. Concerns over obesity and other health issues, coupled with greater competition from perceived healthier snack options in the form of snack bars and sweet and savoury snacks, is hampering volume demand for chocolate in developed markets. North America and Western Europe, for instance, accounted for a combined share of 55% of overall global chocolate confectionery volumes in 2010. However, if we put North America and Western Europe together, total volume sales are projected to rise by just 4% between 2012 and 2017.

Demand for cocoa powder will be slightly stronger, but the difference is not likely to be massive. In China, for instance, total volume sales for chocolate-based flavoured powder drinks will rise by a robust 6% between 2012 and 2017. In North America, a much more mature market, the category will struggle to achieve 2% growth.

The second question centres on the ability of producing countries to meet rising demand for cocoa. According to ICCO statistics, cocoa grindings – the benchmark for measuring cocoa consumption –rose by almost 900,000 tonnes between the 2002-2003 and 2011-2012 seasons. Farmers have proved more than capable of rising to the challenge. Harvests with a surplus during that period outstripped years with a deficit in output by 443,000 tonnes. The average surplus in a ‘bumper crop’ – and there were three recorded over the last 10 years – was around 300,000 tonnes. That equates to almost 40% of the growth projected by ICCO over the next five years.

Don’t panic, please

There is consensus that rising consumption of cocoa over the coming years might prove challenging for the industry, provided yields do not improve and farmers move to more profitable cash crops. The scale and speed at which this might happen is, however, slightly more debatable. Even if ICCO’s projections on demand materialise, they will not necessarily lead to long-term acute supply shortages. Favourable weather conditions could bring about stronger than expected output, as they have done in the past.

If deficits occur at all, a short-term surge in prices would make profitable the use of fertilisers and grafting techniques to smaller farmers. That would in turn increase productivity and boost supplies again. Overall, Euromonitor International’s view is that the impact of weather conditions and prices on short-term production remain a legitimate concern. Panic over long-term supply is not.