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Cocoa price rise could leave bitter taste

The price of chocolate in Switzerland jumped about five per cent this month swissinfo.ch

The spiralling price of cocoa beans is having an inevitable impact on the cost of Switzerland's best-loved product.

This content was published on August 24, 2002 - 17:01

But who benefits from the rise in chocolate prices: manufacturers, West African producers or speculators?

In August, the price of chocolate in Switzerland leapt by around five per cent. The Swiss arm of Nestlé says it is increasing the price of its chocolate products by an average of 4.5 per cent.

"This increase varies from nought to eight per cent, depending on the amount of cocoa used in each product," says Philippe Oertlé, spokesman for Nestlé-Switzerland.

Nestlé's move has been matched by other major Swiss producers such as Lindt & Sprüngli. Migros, Switzerland's largest supermarket chain, has also raised its chocolate prices "moderately".

Competitive prices

Franz Schmid, director of Chocosuisse, the association of Swiss chocolate manufacturers, says those Swiss producers who have long-term supply contracts or big stockpiles have, to a certain extent, been cushioned from the effects of the price rises.

"Sooner or later, though, we will all be concerned," he told swissinfo. "To stay competitive, you have to have good prices. Demand could be affected."

The price of cocoa beans on the commodity markets of London and New York has doubled in the past two years. The current price - just under $2,000 a ton - is the highest it has been for 15 years.

There are two major factors for this increase. One is two successive years of bad harvests in major cacao-producing countries like Ivory Coast and Ghana.

This shortage of beans - while demand remains as high as ever - has prompted traders and fund managers to regard primary commodities like cacao as a safer bet that the equity markets.

Cornering the market

This shift was illustrated recently when the London-based trading company, Armajaro, bought up 148,000 tonnes of cacao - or five per cent of the world's production.

"They see this as an alternative investment fund, and they're starting to corner the market - and it's a small market," says Mario Montagnani, a food analyst at Pictet bank.

Rumours that this season's harvest in West Africa will also be poor has also helped drive commodity prices higher - though Franz Schmid dismisses this as "silly season" speculation.

There is no doubt that a bumper crop would help to restore a more realistic price for the raw material and wipe out the much of the speculators' profits.

The cocoa bean commodity price constitutes just eight to ten per cent of the final cost of a chocolate bar sold in Switzerland. The cost of milk, sugar and packaging and overheads play just as great a role.

But when the price of this basic raw material doubles in such a short space of time, an increase in retail price is inevitable. "Producers obviously feel they have enough latitude to pass on the increase to consumers," Montagnani says.

Tariffs

The rise in price of cacao beans has been welcomed by countries like Ivory Coast, the world's largest producer. But it is often the intermediaries, like Switzerland's largest importer and supplier, Barry Callebaut, and the chocolate manufacturers themselves that stand to benefit the most.

However, Oertlé told swissinfo that Nestlé had very small profit margins on its chocolate-based products, and any profits it did make came from sheer volume of sales.

The UN Conference on Trade and Development (UNCTAD) meanwhile believes that tariffs imposed by industrialised countries like Switzerland are keeping the countries that produce the raw materials in a poverty trap.

Switzerland, like other Western countries, imposes customs levies that increase in relation to the amount a product is "transformed".

UNCTAD believes that without the barriers, exporters of cocoa beans, coffee, tea and cotton would be in a position to develop their own industries based on the raw materials they themselves produce.

Switzerland backs the idea of bringing down these barriers within the framework of the World Trade Organisation. "But without consensus among the countries that have transformation industries, Switzerland will not be making any gestures - that would only benefit our competitors," says Luzius Wasescha, Swiss government representative to the WTO negotiations.

By Roy Probert and Frederic Burnand

Key facts

The price of cocoa beans has doubled in the past two years.
A London based company may be cornering the market.
The price of chocolate in Switzerland is up around 5 per cent.

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