Fluctuating Demand and Supply in the Chocolate Industry
Over the last hundred years, the chocolate and confectionery industry has witnessed stable growth which has transformed the market into an $80bn (£63bn) a-year global industry.
Despite this, the global chocolate and confectionery sector continues to face a wide array of challenges. These include the volatility of cocoa prices and an abundant supply and weakening demand. A crisis could be imminent for the industry, with even Valentine’s Day demand for chocolate treats failing to lift cocoa, which has plummeted to a four-year low in price.
Cocoa Prices Decreasing
Cocoa prices, the main ingredient in chocolate, are volatile and influenced by many factors. These include changes in weather conditions, pests and diseases and political instability in producing countries. Previously we published an article about cocoa prices, which were set to rocket in price for the foreseeable future.
ver, the scenario has changed drastically. In fact, cocoa is trading at its lowest level since July 2013. It’s dropped almost 40 per cent since July last year, when prices hit a four decade high following Brexit where the UK voted to leave the European Union.
If you turn the clock back a year, cocoa beans were also rallying in price due to the El Nino phenomenon. This swept across major cocoa producing countries and severely impacted crop development. El Nino caused significant price hikes to cocoa beans, and resulted in many manufacturers reducing the size of chocolate bars as a cost-cutting manoeuvre. At the same time as the El Nino phenomenon, there were concerns that the soaring demand for a chocolate fix in emerging markets like China, would result in a supply shortage of the key chocolate ingredient, that was already limited.
Surplus in Production
So, what exactly is driving down the price of cocoa?
Cocoa production has been booming, because of larger than anticipated harvests and favourable weather conditions in West Africa and Latin America. These areas account for roughly 70% of global production. Ivory Coast, which is West Africa’s primary cocoa grower, has also seen a rise in production. It’s up 20% from the International Cocoa Organization (ICCO) estimate of 1.90 million tonnes for 2015/2016.
The output gains have driven down cocoa prices significantly. They have transformed the market from a production deficit to the biggest cocoa surplus the industry has witnessed in years. As cocoa is now considerably cheaper for chocolate and confectionery manufacturers (for now), this saving could potentially be passed on to the consumer.
Wavering Demand For a Chocolate Fix
Demand has also reduced as consumers are becoming more health-conscious and watching their waistlines. As a result, consumers in the US and Europe are eating less chocolate, and are seeking healthier alternatives such as protein bars, low calorie options and yogurt. They are also shifting towards premium chocolate offerings, from higher end chocolate and confec
tionery manufacturers such as Lindt and Ghirardelli.
Similarly, chocolate consumption in China has fallen by 4% in 2016 to 122,000 tonnes. This is largely attributed to consumers making more health-conscious snacking decisions. The lack of product innovation and stagnation in discretionary spending have also been cited as reasons for the decline.
As a result, many chocolate and confectionery companies have been pushed into innovating, diversifying and embracing new manufacturing technologies and processes such as pigging. Many firms have launched brand new product lines, with emphasis on the reduction or elimination of sugar. These new innovative products fall within the Sugar Tax ‘untaxed categories’, and are designed to appeal to the growing number of health-conscious consumers.
How Long Can This Market Surplus Last?
There’s no question that the chocolate and confectionery market has always been turbulent. For a long time, cocoa prices have been on the rise, and have been hit with short term volatility along the way.
While currently there is a cocoa surplus, this could all change if production is hit with a strong El Nino, political instability or any of the other hardships that cocoa growers must contend with.
So, what can chocolate and confectionery manufacturers do? How can they remain efficient in this ever-changing, challenging and volatile market?
Increasing Production Efficiency through Product Recovery
Chocolate and confectionery pricing always reflects the economic climate of the day. Whether that’s the impact of cocoa prices which are moving erratically on a regular basis, or other ingredient costs which can also be volatile. Many chocolate and confectionery manufacturers focus on offsetting these costs wherever possible through improvements in efficiency and productivity.
Offsetting costs is key for chocolate and confectionery manufacturers. Especially when they are faced with a slowing demand for their chocolate bars, declining sales and reduced revenue. So, chocolate firms striving to maintain prices, increase their profits and remain competitive, must be able to produce their products in an efficient, cost-effective manner.
Therefore, many manufacturers are implementing best practices and new innovative technology. This is to increase their profitability and improve the production efficiency of chocolate and confectionery manufacture even further. And that’s where HPS pigging and product recovery solutions comes in.
Significant Benefits of Pigging Technology
HPS works with many chocolate and confectionery companies to increase their efficiency through product recovery (pigging) technology. These include the likes of Ghirardelli, Mondelez, Nestle, Blommer Chocolate and many more. Here you will find some case studies on product recovery systems used in chocolate and confectionery manufacture.
They trust HPS, because our pigging solutions are extremely effective. Typically, HPS systems recover up to 99.5% of the product from the process pipelines. This product can then be packaged and sold. Because pigging technology saves considerable amounts of the product, it massively reduces the associated waste and disposal costs. Therefore, due to the reduction in waste, HPS product recovery solutions help improve sustainability and enhance environmental credentials.
Find Out More
In recent months we’ve seen an increase in enquiries from chocolate and confectionery companies about our pigging and product recovery solutions.
While HPS pigging systems will not stop the fluctuations in cocoa prices, they will certainly improve operational efficiency. To find out more about how to improve the production efficiency of chocolate and confectionery production through product recovery systems, then please contact HPS.