(Bloomberg) — Consumers will likely reduce their chocolate consumption as this year’s historic cocoa surge gradually trickles down to manufacturers and forces them to raise prices, a Nestlé SA executive warned.
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Cocoa futures prices have more than doubled this year due to a huge global shortage, making confectionery production more expensive. But shoppers are yet to feel the full impact as chocolatiers have secured and hedged their supplies at lower prices – and businesses will inevitably have to start passing on higher costs, said Mark Davies, chief executive of Nestlé Confectionery UK & Ireland.
“Demand appears resilient at the moment, but as prices rise we expect demand to slow,” he said during a tour of the company’s York factory, in England, which produces 200,000 KitKat bars every hour.
Cocoa futures prices hit a record of more than $11,000 a tonne in New York in April, as poor harvests in West Africa curbed production, stressing buyers. Companies that secured their supplies well in advance have been relatively protected, but they will face higher costs because they buy at prices that are currently much higher.
“People are not paying the headline figure of $10,000 a tonne,” Davies said. Nonetheless, cocoa prices are expected to remain high and the industry should not “imagine a future where prices return to $2,500,” he said.
Why cocoa prices have soared, what it means for consumers: QuickTake
Bloomberg Intelligence said earlier this year that chocolatiers will feel the impact of rising cocoa prices over six to 12 months, and that consumers will also face it. The supply crisis has already prompted some chocolatiers to raise their retail prices or produce smaller bars – and Nestlé’s Davies said higher costs could also prompt some companies to use more cocoa substitutes .
The global cocoa deficit for this season will be larger than expected, partly due to continued consumption, the International Cocoa Organization said in late May. However, some analysts believe that the rise has reached its peak.
Cocoa futures rose 0.3% to £6,473 ($8,241) a tonne in London on Wednesday. US markets are closed for a holiday.
Nestlé says chocolate made in the UK – including at its York factory – uses cocoa from plantations that are part of a program to raise the incomes of poor African farmers. The company plans to expand this program to 160,000 cocoa farming families by 2030.
