Yahoo Finance Chocoholics in Japan Set for Sticker Shock After Cocoa Surge
(Bloomberg) -- Chocolate fans in Japan, among Asia’s biggest cocoa buyers, are heading for a sticker shock later this year as an unprecedented surge in cocoa prices finally filters through to stores.
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Itochu Corp., one of the country’s top trading companies and cocoa importers, says a sudden spike in the retail price of chocolate is inevitable and expects processors to use more substitutes to rein in costs.
Cocoa has been on a tear, with New York futures more than doubling since the start of the year. The rally may have further to run as lower crops in Ivory Coast and Ghana, the top suppliers, leave buyers struggling for beans and traders pulling out of the market make prices vulnerable to large swings.
Some of the impact has already begun to reach consumers, with chocolate prices in March rising about 10% versus the prior year, government data show. Fuji Oil Co., a manufacturer of vegetable oils and fats and industrial chocolate under Itochu, will also raise the price of chocolate with a high cacao percentage by more than ¥1,000 ($6) per kilogram at the wholesale level in July.
A more drastic increase is likely to happen in September to reflect the high cocoa prices in March and April, said Yoshitomo Yamada, cocoa and sesame section manager at Itochu. Existing stockpiles can keep processors operating normally for now, with the price spike likely to come about six months later.
“No one knows what to do,” Yamada said in an interview, referring to measures for managing the surge in cocoa prices. “We haven’t had this level of tightness before. We don’t know if $12,000 might be appropriate, or if $15,000 might be appropriate, or $8,000.”
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Japan is a large market for high-value confectionery and it sources about 75% of its cocoa imports from Ghana, World Bank statistics show. Itochu is one of the biggest merchants handling those purchases and supplies national chocolate brands such as Meiji and Lotte.
The country might have to import more from No. 1 producer Ivory Coast due to uncertainty in supplies from Ghana, even though consumers are more familiar with the flavor and branding of beans from there, Yamada said. Some customers have already asked for Ivory Coast cocoa specifically to avoid a shortage.
In addition, Yamada said Fuji Oil could offer another solution to the cocoa crunch. It is a large producer of cocoa-butter equivalent, known as CBE, made from palm oil and sunflower oil.
Customers will not notice a big difference between cocoa butter and CBE, Yamada said. Demand for this and other substitutes will rise in Asia, where there is a huge diversity of purchasing power, he said.
(Updates to add Fuji Oil’s price increase in July in fourth paragraph)
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