The world's biggest chocolate-maker says we're running out of chocolate
washingtonpost.com
washingtonpost.com
See a 2007 proposal here: http://www.washingtonpost.com/wp-dyn/content/article/2007/04...
"Chocolate lovers read that as a direct assault on their palates. That's because the current FDA standard for chocolate says it must contain cacao fat -- a.k.a. cocoa butter -- and this proposal would make it possible to call something chocolate even if it had vegetable oil instead of that defining ingredient. Whoppers malted milk balls, for instance, do not have cocoa butter."
http://news.bbc.co.uk/2/hi/europe/764305.stm
http://news.bbc.co.uk/2/hi/uk_news/678141.stm
I don't have a "golden palette" but I think I can tell the difference. ("Dairy Milk" is gritty; Galaxy is either creamy or greasy (but my prefered cheap choc) and they have different mouthfeel).
Michel Cluizel is my prefered expensive chocolate, but that could just be because I like the box. I'm not sure I'd be able to tell the difference between that and other good chocolate if I was doing a blind taste test.
I distinctly remember how several years ago Mexico manufactured Tequila shortage by claiming that disastrous weather led to a shortage of agave fruit. At least this was a story given by Canadian liquor stores to questions why Tequila prices were hiked by close to 50% almost overnight. I kid you not. They also issued assurances that once this pesky Mexican weather normalizes the prices will go back to normal. You guessed it - they never did.
The article is written in a fantasy world where neither supply nor demand can be altered. Amusingly, while discussing the problem (farmers are switching to more profitable crops) it also discusses the automatic solution (decreased supply will increase prices which will decrease consumption and increase production).
Consider that Theobroma cacao only grows well and healthy in the shade, in the middle of the rainforest, it's natural habitat, which is increasingly rare or protected land.
It's also grown by small scale farmers, because it's labour intensive, and they don't know/don't care about managing the forest properly, further increasing deforestation, and endangering the crop itself.
Today's practice is to grown it under sunlight, in poor soil, which requires large doses of herbicides and fertilizers, makes it susceptible to diseases and shortens the lifespan of the tree by 1/2.
On top of that, prices have been increasing for the past 10 years, but I've only seen the production go down here in Brazil. We went from exporter to importer. The invisible hand of the market is not fixing it either.
So you can't assume it's sustainable just because it's not oil.
17 Jul 2010
The purchase was enough to move the entire global cocoa market, sending the price to the highest level since 1977, and triggering rumours and intrigue in the City.
It is unclear which person, or group of traders, was behind the deal, but it was the largest single cocoa trade for 14 years.
The cocoa beans, which are sitting in warehouses either in The Netherlands, Hamburg, or closer to home in London, Liverpool or Humberside is equivalent to the entire supply of the commodity in Europe, and would fill more than five Titanics. They are worth £658 million.
http://www.telegraph.co.uk/finance/markets/7895242/Mystery-t...
How can the world be eating more cocoa than it produces? I can imagine there might be stockpiles, but surely they're gone if we're talking about year-over-year deficits.
I think the article means that the demand for chocolate in 2020 could be 1 million metric tons more than supply. So prices will go up, and there will be an economic incentive for suppliers to increase production and for manufacturers to innovate with new products and efficiencies. Seems pretty normal.
Oh don't worry they're already "innovating", though those filthy stinking regulations get in the way and stops them from innovatively selling cocoa-flavored vegetable oil as chocolate.
Damn you, regulations!
Chocolate will become more expensive.
Not really a story...
The article mentions a few obstacles to increased production, but those certainly aren't insurmountable.
Price increases will inevitably result in both decreased demand and increased supply.
Isn't it weird chocolate native to South America is grown mainly in African countries and coffee native to South American is mainily grown in South America.
Chocolate running out headlines have existed probably as long as newspapers and mass consumer chocolate.
edit: apparently it is mentioned in passing. oops.
Bananas aren't that big of a deal for most people, especially if you're looking at going from two popular varieties to one. If the Cavendish gets wiped out too, I'd say that would just be due to people not caring all that much about bananas. I can't imagine the same happening for chocolate.
If bananas went extinct (while people dependent on them were able to switch to some other food), I'd basically just shrug and get on with life. If chocolate went extinct I'd consider it a colossal disaster. I suspect I'm not alone.
But there are two points. First is that you are underestimating the kind of role a crop can play in a culture. It is not just a matter of replacing Banana with another crop. It is a matter of changing significant cultural traditions going back hundreds of years. If you think about it, the importance of chocolate is also largely cultural.
Second, it is a philosophical debate that what is more important - something that is basic nutrition for one group or something that is cultural/emotional/luxury/(I can't find the right word for the role chocolate plays) for another. Where the resources will be allocated will depend on who controls those resources and which camp they fall in.
What was your point?
This may be the reason..
We do have some excellent American chocolate, though: http://www.fearlesschocolate.com/
In fact, the article itself mentions 10% cocoa content as being typical for milk chocolate. In Europe, the minimum required by law for milk chocolate is 25%.
This kind of thing is why I wouldn't like TTIP to be ratified...
So both pretty close to the minimums. As a Brit, I personally don't like Cadbury Dairy Milk, far too coarse and sweet. When it comes to milk, I prefer the creamier and smoother brands. But then, to me chocolate isn't an everyday or even regular thing at all.
When you look at dark chocolate you're looking at anything from 70 to 99%. When you get to about 85%, chocolate becomes a completely different experience.
Not that I disagree qualitatively (quite the opposite), but legally neither the EU nor the FDA have any such category, their highest categories are at 35% cocoa (respectively "chocolate" and "bittersweet chocolate")
My jam's the 99% these days, although I often have to fall back on the 85% when my 99% stash is empty and I haven't found a refill yet (not every place around here sells 99%, but 85% and under is easy to get).
It's handy that most people can't eat 99% too (because they try to eat it like 60% or milk chocolate and that's not a very good idea), nobody raiding your stash.
On a related note, I have always wondered why food quality is so different by region. For example, these are some categories where the good variety is hard to get in other countries:
- belgian beer - swiss chocolate - italian mozzarella
In this day and age where goods are shipped for almost nothing around the world, why do they still manage to sell inferior products without having a foreign competitor out-competing them with the better product? Is the foods market simply too price sensitive? Barriers to market entry too high?
http://i.imgur.com/2WYy1pZ.png
Symbols: NIB or CHOC
According to everything I found, what happened was that Kraft's price was too low and they did not want to be part of Kraft's low-growth conglomerate strategy. Once they discovered Kraft was actually planning on abandoning that strategy, they they polled shareholders about what price they would be willing to accept, and Kraft offered slightly more than that. [2]
[1] http://radian.org/notebook/porsche
[2] http://www.ft.com/intl/cms/s/0/1cb06d30-332f-11e1-a51e-00144...
I remember the article clearly. The cocoa was for delivery and the trades were done anonymously (as anonymously as possible) and that"s what made the article stand out. Then a few weeks or months later the talk of the kraft purchase.
Of course, 90% of the worlds chocolate was most likely for contracts that month and not the full year, which I guess is what's making the article so hard to find!
1) Raise prices till consumption matches production.
2) Increase production.
3) Don't decrease prices.
4) Profit.
Suppose you increase prices at a rate exceeding that which decreasing supply would demand, in collusion with other suppliers. You use the proceeds to increase wages.
Some point in the future, supply increases back to normalized levels, but now the cost of supply has also increased (because you pay people more), so the wholesale prices remain increased. Prices can only drop back to levels of the new cost floor, or the cost floor has to be moved down somehow -- in this case reducing wages.
We see a similar effect in oil markets because the cost of oil production has gone up as easy-to-exploit sources have dried up and more expensive sources have had to come on-line to meet demand. Production has actually increased but prices have stayed relatively high. This includes massive new production outside of OPEC cartel control, so even cartel price fixing doesn't account for it. Even more important, in a major market like the U.S., the distribution costs have dropped as a share of wholesale prices as domestic supply has come on-line.
Consumers have simply gotten used to the higher prices so there's reduced pressure to lower them competitively in order to ensure sufficient demand to move target inventory volume.
There's also other factors than pure supply/demand. Product differentiation can build in higher prices through perceived value (or other factors) in consumer's minds. Suppose over the next 10 years, the U.S. chocolate industry creates a marketing term "Savanna Chocolate" and starts rebranding all products by percentage of "Savanna Chocolate" they contain. "Now with 5% Savanna Chocolate!", supplemented with a marketing campaign to push all products as "Savanna Chocolate". The term is meaningless. However, it allows them to charge a 10% premium on product which helps guarantee higher prices.
Because Savanna Chocolate is not a thing, there's nothing to compete against, it's also trademarked. A competitor can't simply start selling their cheaper "6% Savanna Chocolate" competitor because they'll be sued into oblivion, if they wish to use the term, they'll probably just be charged a license fee large enough to ensure price compliance. All they can do is start an information campaign to try to persuade the public that Savanna Chocolate doesn't exist. These don't necessarily translate into higher demand for a competitor's product, and may in fact deflate the entire industry.
tl;dr - pricing is hard, simple supple-demand models don't describe it very well.
Meanwhile, the branding effect you talk about seems to cut against your argument. If consumers are conditioned to seek out boutique chocolate, the barriers to entry into the chocolate market are lowered: large suppliers like Hersheys and Callebaut can't use their brand power to lock consumers in which harvesting their economies of scale.
Long story short: I think the 1-2-3-4 story you told upthread isn't very plausible. If chocolate prices rise and stay there, my guess is that's where they belong. If they didn't, one of the dozens upon dozens of boutique suppliers already vying for shelf space at Whole Foods and Safeway and Costco would sacrifice a little surplus profit to make a play for some of Callebaut's market share.
† Sugar is an exception, but there are extrinsic reasons for the market dynamics of sugar --- trade policy and subsidies being two big ones --- that are absent from cacao.
(Prices would have to fall if production increased even if there were a single end-to-end monopolist chocolate seller, because the consumers wouldn't want to buy the extra chocolate at the higher price.)