Sweet crisis: Despite 45-year-old cocoa costs, the Indian chocolate sector manages to maintain its products delicious for customers

 Sweet crisis: Despite 45-year-old cocoa costs, the Indian chocolate sector manages to maintain its products delicious for customers

Given the strong Christmas and New Year's sales season, domestic chocolate manufacturers can decide not to hike prices until the following year.

Growing product imports are hurting the Indian cocoa processing sector.

The rapidly expanding Indian chocolate market is being negatively impacted by the sharp rise in cocoa prices worldwide, but given the hectic Christmas and New Year's sales period, most producers would wait to ship their products to customers until the following year.

Major Indian chocolate manufacturers, such as Lotus Chocolate and Amul, have not raised the cost of their goods to yet. "We are losing money as a result of growing costs for raw materials," said Lotus Chocolates manager YVS Shiva Prasad. Should the upward trend persist, the organization could think about updating the MRP or simplifying its language.

India's fast expanding demands for chocolate manufacture have led to an increase in imports of cocoa and related derivatives over the years. This is because the country's 30,000 tons of local output is insufficient to fulfill the country's need.

In recent months, there has been a surge in global cocoa prices due to worries about reduced output from two key producers: Ghana and Ivory Coast. Industry sources state that the price of cocoa futures globally is now at $4200 a tonne, which is the highest level in 45 years.

impact on production

The International Cocoa Organization research states that excessive rains and the potential for a third year in a row of fall in global cocoa output in the 2023–24 season (October to September) might keep the optimistic trend going. Concerns about El Nino, the swollen shoot virus, and black pod disease are impeding Ivory Coast's ability to produce cocoa.

Following a decrease during the pandemic, domestic chocolate demand has recently increased once again, including not just confections but also cakes, cookies, and ice cream. This is shown by the fact that even in tiny towns, a variety of chocolate goods from global chocolate manufacturers like Mars, Mondelez, Nestle, and Ferrero Rocher are readily available.

According to DS Rao, a consultant for the cocoa sector, "most local producers currently have stocks of raw material and with the Christmas and New Year season approaching, they may wait till the end of the year before increasing prices."

The fact that the majority of Indian chocolate manufacturers utilize vegetable fat instead of the more costly cocoa butter is another factor contributing to the industry's sluggish response to price hikes across the world. In the industry, these manufacturers account for 70% of the total. It used to be 80%, but as demand for high-end goods has grown, this percentage has decreased, he added. The majority of producers of cakes and chocolates employ a chocolate compound made of sugar, vegetable oil, and cocoa powder.

The cost of cocoa butter doubled

Imported cocoa butter, which is used to make luxury chocolate, is now twice as expensive per kilogram at Rs 700–800. The cost of cocoa powder has also increased. "Imported cocoa powder of variety JB 800 is in low supply. Its cost has thus gone up from around Rs 260 per kilogram to Rs 450 per kg. For imports from South East Asian nations like Indonesia, we now have to provide bank guarantees, which is problematic," said Mukesh Sinha, national sales manager of Kayampi Foods Pvt Ltd. Ltd.

Since many chocolate producers have long-term agreements for the import and purchase of cocoa goods, they could only be impacted when those agreements are renewed in light of the rising costs. However, Sinha said, "new entrants in this segment may be affected by the surge in prices because they prefer spot buying, unlike this segment."

The price of Indian beans has also increased due to the increase in global cocoa prices. Local cocoa bean prices are 20–25% greater than they were a year ago, having risen from Rs 250 per kg in the preceding months to about Rs 260–270 now. Campco Ltd, a prominent cooperative in the cocoa sector situated in Mangalore, has raised the pricing of its cocoa goods, such as cocoa powder, cocoa butter, and cocoa mass, by Rs 25-75 per kg. This increase has resulted in an increase in consumption within the B2B segment. As said by HM Krishna Kumar, MD.

"Almost the same amount of cocoa beans were produced this year as last." When the harvest begins in April of the next year, we will have to assess whether this year's extra rains will have an impact on cocoa output," he said. According to reports, increasing worldwide pricing and climate change might cause Indian bean prices to rise by Rs 300 per kilogram.

competition from imports

Instead of importing cocoa beans for processing, where they would be subject to a heavy duty of more than thirty percent, Indian chocolate makers choose to import cocoa goods from Southeast Asian nations where there are no or little duties.

The Directorate of Cashew and Cocoa Development reports that, in FY23, imports of cocoa and cocoa preparations climbed by almost 16 percent on an annual basis to a total of 128,654 tons. Although it makes up just 15–16 percent of the commonly used chocolate components, cocoa powder is the most important import. As a result, the majority of confectionery manufacturers would not be as impacted by its price rise as luxury chocolate manufacturers that utilize more costly foreign ingredients.

On the other hand, rising product imports are hurting India's cocoa processing sector. "The 1.5 lakh tons of domestic cocoa required each year are met by the processing business in India, which loses Rs 470 crore. After processing, the beans are exported at a lower cost to India by Southeast Asian nations. As to Durga Prasad, MD of DP Cocoa goods Pvt Ltd, "They have an inverted duty structure, with cocoa beans carrying a heavier duty than products."