Chocolate has been part of the western lifestyle for generations and now its popularity is growing in eastern countries. That’s one factor in the industry’s changing landscape. Here are five facts to kick-start any story on this sweet industry.
Over-supply and lower prices
Cocoa is the main ingredient in chocolate and cocoa bean production largely determines pricing, trade balance and future contracts. BMI Research forecasts prices will trend lower until 2019 as production growth outpaces demand. The World Cocoa Foundation found total production increased by 13 percent in five years, from 4.3 million metric tons in 2008 to 4.8 million metric tons in 2012. This represents an average year-over-year production increase of 3.1 percent. Meanwhile, average year-over-year demand growth has been just over 3 percent since 2008.
Markets rising and falling
The demand for chocolate is also rising. CNBC reports the overall chocolate market rose 13 percent between 2010 and 2015 to hit $101 billion, according to Euromonitor, a market research firm. In the U.S., chocolate is the largest sub-category of the $34.5 billion confectionary industry, with sales accounting for $21.1 billion. That’s over 60 percent of the confectionary industry, according to the National Confectioners Association. However, consumers in the U.K. appear to be abandoning chocolate. CNBC reports that the U.K. market for chocolate shrunk by $2 million between 2013 and 2015, again citing Euromonitor.
Climate threats
West African countries account for over 70 percent of cocoa production, particularly the Ivory Coast and Ghana, where the hot and humid climate is well-suited to cocoa trees. However, rising temperatures pose a threat to plants in these regions. CNBC reports the International Center for Tropical Agriculture has warned that an expected annual temperature rise of more than 2 degrees Celsius by 2050 will leave many of West Africa’s cocoa-producing areas too hot to grow the crop. Meanwhile, lower profits in the cocoa farming community have pushed cocoa farmers to abandon the industry. According to Maekchocolatefair.org, many cocoa farmers and workers in the Global South live in absolute poverty on less than $1.25 a day.
Stalled sales in legacy chocolate
Consumer tastes are always changing, which means producers have to keep up. That isn’t always easy. FoodIngredientsFirst reports many legacy chocolate brands are seeking more consolidation among big food makers to boost stalled sales growth. As a result, mergers involving large sums of money are not infrequent. The takeover of Kraft by Heinz last year was a $40 billion deal. In May, Nestlé announced a joint venture with the U.K.’s R&R ice cream company. But mergers aren’t always a safe bet. Fortune.com reported in May that the failed merger between the snack brands Mondelez and Hershey sent Hershey’s shares down over 10 percent.
Organic cocoa and premium chocolate
Despite these challenges, there are numerous opportunities for the industry. The demand for healthier alternatives and for premium chocolate (including flavored, single-origin, organic, ethically traded and high-cocoa chocolate) is growing significantly. According to National Confectioners Association, premium chocolate sales grew nearly 11 percent in 2014 compared to a growth rate of 2.9 percent for the chocolate industry as a whole. Sales of dark chocolate, which is said to have health benefits, increased by 8 percent in 2014 alone.
