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Crisis?
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Marcellus
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March 17, 2008 - 7:11 pm
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How do people on this forum think chocolate is going to be affected by the world economic problems? We are being battered by bad news on all fronts at the moment - credit crisis, exchange rates, commodity and energy price rises, etc. I can't believe that chocolate and chocolate businesses have been or are going to be unaffected by the general conditions. I would imagine the US chocolate businesses have been hit harder than most simply because of the weak dollar but maybe not. I'm sure a lot of people have heard of Peak Oil by now but could we have reached Peak Chocolate?

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alex_h
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March 18, 2008 - 3:38 pm
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funny, i just had the same thought. i will probably spend less and save more, not just when it comes to chocolate, but in general.

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Sebastian
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March 18, 2008 - 10:24 pm
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Oil prices, energy prices, dairy prices, sugar prices. ouch. all are affecting chocolate producers significantly.

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gap
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March 18, 2008 - 11:25 pm
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As mentioned, oil, energy, dairy and sugar prices are all going up. Wheat as well (from a bakers perspective). But the prices are going up for all businesses, so chocolate shouldn't be affected any more than the next food business by the increasing costs on a RELATIVE basis - eg., if all food prices go up 10% then my choice between chocolate and competing food products is still the same.

Where I think chocolate may suffer is, as also mentioned above, people may choose to cut discretionary spending - and for many people good quality chocolate is probably a "luxury" item that can be cut if times get difficult (as opposed to say the bread from the baker - also going up in price but still required and will be bought)

So while I think costs are rising for producers of chocolate, I think its moreso the potential necessity to cut back on luxury items/discretionary spending which could see chocolate demand fall.

I only make the distinction because knowing the cause of reduced sales may offer an insight to potential remedies for chocolate companies. Eg., "how do I capture a larger portion of a consumers discretionary spending (when that spending is shrinking)?" is a different question to "how do I keep costs down?".

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Sebastian
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March 19, 2008 - 1:15 pm
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actually, one of the interesting things is that when the economy turns sour, chocolate consumption typically increases, so it's an inverse relationship. people feel they can't spend money on the biggies (vacations, cars, etc), but a few bucks here and there for a luxury item becomes a very reasonable indulgence.

i think we'll likely see rather large price increases in chocolate in the coming years - think about it - how much was a candy bar when you were a kid, and how much is it now? the prices are very similiar, so even though the cost to mfr and distribute has increased, it's been difficult to pass those costs on to consumers. world cocoa production's not increased significantly, although consumption has, and now new entry markets are emerging (china, india, etc) so we can expect there to be sourcing issues tomorrow when none exist today. if demand outstrips supply, up goes the price.

then there's the ratio issue - in order to make chocolate, most large producers require cocoa butter. in order to produce ccb, you need to produce cocoa powder. if the demand for ccb is there but the demand for ccp isn't, the ratio of the two is skewed and production will likely be cut back if the margins on the ccb don't cover the production of the excess ccp...

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gap
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March 19, 2008 - 10:27 pm
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Sebastian,

A good point on chocolate consumption being an "affordable" luxury rather than the big-ticket items. I hadn't thought of that but I quite like the idea of people eating more chocolate as an economy deteriorates: it works for me from an economic perspective as well as a personal psychological one. [:D]

The "ratio issue" you refer to is also interesting - I've often thought about the need for extra ccb in production and wondered how producers deal with the excess ccp and what happens when the demand for it isn't there.

As for the likely increases in demand in the future (from, say, China & India) - do you think this will drive demand in bulk beans or fine beans (using very general/stero-typical definitions here) or both? Is it possible that bulk beans will be the first to see the pickup in demand (given its lower pricing point) or are the two driven in tandem?

From the supply side, do you know if moves are underway to expand cocoa growing? (eg., new territories trying to grow cocoa) or make it more efficient? - if even possible (eg., better use of the land that currently grows cocoa)

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seneca
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March 19, 2008 - 11:14 pm
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One country that's certainly investing pretty strongly in new cacao growth is Vietnam:
http://www.itpc.hochiminhcity......0462342507

I'd agree with Sebastian's comment above--being a chocolate maker, confectioner or baker is probably not the worst idea during a recession...

http://bittersweetcafe.blogspot.com
http://www.bittersweetcafe.com

http://bittersweetcafe.blogspot.com http://www.bittersweetcafe.com
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Sebastian
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March 20, 2008 - 8:30 pm
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Right now, the average Chinese chocolate consumption is roughly 49 grams. Per year. Contrast that with the average 'merican consumption at 11 POUNDS or the average swiss at 23 POUNDS per year, and you can easily see that if/when asian consumption rises, it'll have a dramatic impact on supply. I do think that in 3-5 years Vietnam will be a very interesting origin - production quantity beans ahve already been shiped and processed from there, fermentation practices are still evolving. I'd expect S. China to increase plantations, but realistically cocoa is hard to 'mass produce' (you don't see fields of it as you do, say, corn - and there's a limited growing region available in which to consider growing it - almost all of it's in 3rd world contries with terrible infrastructure... i do think we'll be in a resource crunch in the future.

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seneca
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March 20, 2008 - 10:43 pm
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I totally agree that in the longer term there will almost certainly be a collision between demand and supply, especially in the universe of fine flavor cacaos.

http://bittersweetcafe.blogspot.com
http://www.bittersweetcafe.com

http://bittersweetcafe.blogspot.com http://www.bittersweetcafe.com
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Alex Rast
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March 22, 2008 - 10:08 pm
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quote:


Originally posted by seneca

I totally agree that in the longer term there will almost certainly be a collision between demand and supply, especially in the universe of fine flavor cacaos.


What I *hope* doesn't happen, but if the way other markets seem to go is true for chocolate as well, may be inevitable, is what I'll call "supply hogging". Here's what happens. Demand for a particular good goes up, outstripping supply. That drives up the price, which is fine, but it also causes the rise of a subculture in a particular country or region or city to become irrationally obsessive, paying any price above and beyond market price in order to secure their supply, but much more importantly, their image in the context of their social group.

Before long virtually *all* of the supply goes to that one localised area, regardless of the demand elsewhere, because the prices that it can be sold for in that one area are so disproportionate to anywhere else in the world. Everyone else is entirely shut out, and furthermore, in the "hot" region, the supply is then often used in wasteful, extravagant ways that serve little purpose other than to magnify the social standing of the person using the item so indiscriminately. Moreover, a lot of the rest is carefully hoarded, not even touched. The net result is that the actual *value* of the item so sold - in this case if it were chocolate it would be in the sensory pleasure of really good chocolate - is destroyed - regardless of the *profits* the manufacturers, distributors, etc. reap, and furthermore *all* of that value is systematically denied to the rest of the world in a way that is disproportionate to the relative demand in that rest of the world.

Another way this can happen (not necessarily probable in a chocolate context but not inconceivable either) is that a particular industrial application generates extraordinary demand for a good, making it unavailable to other industries or for that matter to the consumers. Cocoa butter is a classic example, given it is also used in cosmetics as well as in chocolate. IIRC, the quality chocolate industry actually has the disproportionate demand, leaving the cosmetics manufacturers holding th bag, so to speak, but it's an inequity in the system.

I find it interesting that there is so little apparent demand for quality cocoa. One does not often find origin cocoa powders or for that matter anything beyond a few commodity brands, and this is, I think, the source of the supply imbalance. It seems a bit strange to me because there are many applications in which cocoa is better than chocolate, and yet one finds so few chocolate manufacturers making any attempt at decent cocoa powder. Of course this doesn't have an impact on industrial cocoa butter production but I suspect similar inequities of demand exist there.

Where I think world economic problems will have a major impact on chocolate is at the beginnings of the supply chain - in the plantations and the factories. Suddenly, there will be much less investment, both in new and/or improved plantations, and in production equipment, facilities, pay for skilled workers, etc. The farmers are going to be very hard hit, many of them going under, while meanwhile factories will lie idle or underused, and many skilled cocoa workers might be forced by economic necessity to leave the business for good. In the end this might mean a decline in industry knowledge and skills passed down from generation to generation, so it's conceivable that in the long run quality of chocolate will decline.

Alex Rast
Alex_Rast_Alternate@hushmail.com

Alex Rast Alex_Rast_Alternate@hushmail.com
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Ephrem
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June 7, 2008 - 1:06 pm
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Marcellus,

In the original post you commented on the effect of the weakening dollar in the U.S. It is a mixed issue. I work in a bakery that also makes jams and jellies, and chocolates. We have found that as the dollar weakens, the percentage of foreign tourists increases. Also as gas prices go up we get more people within a day's drive of the store. People who normally might take a week's vacation to someplace distant are instead taking weekend trips. So at least in the beginning if you are dependent on tourism you might see an increase in income.

Just some food for thought.

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Marcellus
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June 10, 2008 - 8:09 pm
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Ephrem, how have your chocolate and ingredients prices been affected? Here in GB one or two chocolate suppliers have announced quite big increases.
http://www.hbingredients.co.uk.....oads/june/

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Ephrem
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June 11, 2008 - 1:56 am
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It seems to vary by company. For example, Guittard has not changed much at all, but Cocoa Barry went up about $1.50 a pound. It seems to me that this is more a result of the weakening dollar than rising food costs across the board. However, we also run a bakery. Last year a 50 pound bag of flour went for about $11. This season the same bag sold for about $30! I don't know the amounts but butter and sugar have increased substantially as well. The more basic food products seem to be taking the biggest hit in price increases. You may or may not know but I am hearing that there has been a drought for wheat farmers and trouble with flooding for rice farmers. I suspect that to some extent the drought and flooding that affected wheat and rice have had some adverse effects on cocoa growers as well. I am sure the combination of unusual weather, rising fuel costs, and in the U.S. the weakening dollar are all combining to cause a substantial rise in prices, particularly in food prices.
On the other hand, as I said in my previous post, we have seen more Europeans this year in our shop as well as a double digit increase in sales! Only time will tell I guess.

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harry
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September 4, 2008 - 1:59 pm
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Amedei's wholsale prices have gone up massively. For me and increase of £5 per kilo !!
Pralus also. I guess bars will be going up in shops too, so at least i can bump my prices up a bit with out feeling bad or giving my customers a worse deal.

Has anyone noticed an increase in bar prices? Haven't seen it that as much in shops as i have with distributors.

Those in the choc business must be feeling the pinch i bet... and putting up their prices too?

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