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High cocoa price bodes ill for chocoholics

Scooping up cocoa beans in Ivory Coast, the world's largest producer Keystone

Swiss chocolate makers are warning that rising cocoa prices could lead to higher prices for consumers.

This content was published on July 4, 2007 - 15:55

Cocoa climbed to a four-year high in London last week after a plane carrying the prime minister of Ivory Coast, the world's biggest producer, was attacked.

According to the International Cocoa Organization (ICCO), the cost of cocoa has been rising steadily since the turn of the year.

On Tuesday the closing price in London for a metric ton was $2,149 (SFr2,613) – 26 per cent up on the January average of $1,702.

Swiss food giant Nestlé, which owns the Cailler chocolate brand and also makes KitKat, said on Tuesday that it did not expect rising cocoa prices to have a profound impact on its business.

The Vevey-based multinational, which has two factories in Ivory Coast, says its cocoa needs are largely covered for the year and it sees no need to revise its organic growth target of five to six per cent for 2007.

But spokesman François-Xavier Perroud warned that people could end up paying more for their chocolate if the price of cocoa remained high.

"If you are in a position of having strong brands, it is evident that you will pass on these prices to the consumer to some extent," he told swissinfo.

Adverse weather

Zurich-based Barry Callebaut, the world's leading chocolate maker, said higher cocoa prices were likely to be a reality for some time as the mid-crop in West Africa – most countries have two harvests – had been hit by adverse weather conditions.

"This is likely to have a negative impact on the size and quality of the harvest, and ultimately further drive up cocoa prices," said spokeswoman Josiane Kremer.

"Expectations for the main crop are not too good either, so we expect higher cocoa prices in the medium term. They could rise to £1,100-1,200 (SFr2,695-2,940) per metric ton."

Barry Callebaut, which also has two factories in Ivory Coast, says the higher costs will undoubtedly have an effect on retail prices but says it is unable to quantify at this stage what this might be.

Lindt & Sprüngli said it was continuing to analyse the cocoa market closely but was unable to comment on whether it would have to raise product prices.

Shortfall

But Franz Schmid, director of the Union of Swiss Chocolate Manufacturers, Chocosuisse, echoed the view that if the cost of cocoa continued to climb, manufacturers would have to respond accordingly.

"Price rises will become unavoidable," he said.

In its most recent quarterly review of the cocoa market, published at the end of May, the ICCO predicted a global shortfall in supply this year.

The London-based organisation says global production will fall 7.4 per cent to 3.44 million metric tons, while demand will rise 1.8 per cent to 3.55 million metric tons.

Laurent Pipitone, senior statistician at the ICCO, said that while the supply deficit was a clear factor in driving up prices, they were also being fuelled by a "poker game" over cocoa futures on the financial markets.

He said it was impossible to say whether the price would continue to rise or even collapse, but he added that early indications were that there would be a cocoa surplus in 2008.

swissinfo, Adam Beaumont

Key facts

The largest cocoa-producing countries are Ivory Coast, Ghana and Indonesia. Almost 90% of production is estimated to come from smallholdings under five hectares.
ICCO estimates there are 2.5 million smallholders growing cocoa around the world.
Overall Swiss chocolate manufacturers made record sales of SFr1.53 billion ($1.26 billion) last year as a result of a marked increase in exports, according to Chocosuisse.

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Ivory Coast

Following civil war from 2002-2003, the country was divided into a rebel-controlled north and a government-ruled south. The latest in a series of peace deals was signed in March this year.

Anti-corruption watchdog Global Witness published a report last month stating that Ivory Coast's government and rebels plundered the cocoa sector to the tune of around $90 million to fund the war. It fears there could be a repeat if the peace process breaks down.

Switzerland's Walter Kälin, the UN secretary-general's special representative on the human rights of internally displaced persons (IDPs), has just completed a five-day visit to Ivory Coast.

He urged the country's government to ensure that the thousands of IDPs in the divided West African country have the necessary means to make a safe and sustainable return to their home towns and villages.

Kälin also called on the international community and donors to support the programmes in place to help returnees re-adjust to regular life.

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