Supply woes, high prices changing chocolate treats

Reuters

By Marcy Nicholson

PARADISE ISLAND, Bahamas (Reuters) - Chocolate treats will continue to get a little less chocolaty if the cost of the key ingredient cocoa rises further and the long-term supply concerns become a reality, one U.S. manufacturer told Reuters.

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"There's been clearly over the last couple of years, a reduction in unit size of a lot of products. That's really a manifestation of demand rationalization," said Peter W. Blommer, president and chief operating officer of the Blommer Chocolate Company in the United States.

U.S. cocoa futures prices hit a 32-year high last month at $3,775 per tonne, when agricultural commodities overall were rallying. They were spurred even higher by an export ban in top grower Ivory Coast as the political crisis there worsened.

"If cocoa prices continue to go up and the supply issue becomes more acute, I think you'll probably see more of those types of products that are marketed, just because of price," he said, referring to chocolate products that have non-chocolate centers.

Blommer, whose family has been in the chocolate-making business for 75 years, spoke on the sidelines of the Cocoa Merchants' Association of America conference in the Bahamas, where serious concerns about future supplies of cocoa in the next 10 years was a major topic.

"We're talking about the next 10 years seeing a significant supply crisis, so yeah, I am concerned," Blommer said.

Climbing global demand combined with an aging population of cocoa farmers who often don't know how to improve their yields, has many in the industry worried about how the world will increase its annual production by the necessary 1 million tonnes, or roughly 25 percent, in the next 10 years. Global production in the 2009/10 crop year reached 3.6 million tonnes, International Cocoa Organization data shows.

"Young people don't want to work on farms in isolated areas," said Pamela Thornton, portfolio manager of London-based Armajaro's CC+ fund while moderating a panel on Saturday.

While there are many programs to help cocoa farmers around the world improve their production and, in turn their incomes, the challenge to reach a significant number of growers in West Africa -- where 70 percent of the world's cocoa is grown -- remains a daunting task.

"We know how to triple yields in West Africa but we haven't been able to transfer that knowledge. We've really not found a solution that reaches people at scale, millions of farmers versus thousands," said Andrew Harner, global cocoa director for MARS Chocolate.

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Obstacles include a lack of infrastructure and aggregation of farmers, and limited government policy or involvement. Additionally there is a lack of new land to harvest.

"Most of the major origins simply can no longer destroy forests to plant cocoa. Tree stock is past its peak in every major origin," said Peter Petersen, an analyst and director of Amo Delta Ltd based in Ghana.

Alain Fredericq, director of Global Business Development and Sustainability for ADM (Archer Daniels Midland) Switzerland, said the industry needs to professionalize the farmers in West Africa.

"We are expecting in the coming years to have trouble keeping up with demand," Fredericq said while speaking on a panel at the conference.

ADM <ADM.N> is one of the world's biggest cocoa exporters.

Last month, the Liffe cocoa futures contract reached an eight-month high at 2,425 pounds per tonne,

Parkman did not expect that U.S. cocoa futures would fall back to $2,000 per tonne any time soon because of demand.

(Reporting by Marcy Nicholson, Editing by Sandra Maler)