Cocoa prices to eat into chocolate lovers' budgets

Mon Feb 14, 2011 10:39pm IST

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* Cocoa price rise to force chocolate makers to raise prices

* Cocoa hits year high on Ivorian ban extension concerns

* Consumers seen willing to pay more for Swiss quality

By Silke Koltrowitz and Nathalie Olof-Ors

ZURICH, 14 Feb (Reuters) - Chocolate lovers will have to dig deeper into their pockets as record-high cocoa prices, boosted by fears an Ivorian cocoa export ban may be extended, leave Swiss chocolate makers no choice but to pass on the increase.

Ivory Coast's presidential claimant Alassane Ouattara said in a news interview on Monday that he would extend indefinitely a one-month ban on cocoa exports if his rival, incumbent Laurent Gbagbo, did not leave power by the end of that period next week. [ID:nLDE71D007]

May ICE cocoa futures CCc2 jumped to $3,444 a tonne on the news, their highest since January 2010. [ID:nLDE71D17I]

Most Swiss chocolate makers source their cocoa from other West African countries, like Ghana, and are thus not directly affected by the embargo, but expensive cocoa weighs on their margins and will force them to pass on the cost to customers.

"Obviously, for chocolate companies higher prices are going to hurt. However, chocolate tends to be sold in convenience channels like kiosks or garages where increasing prices is less difficult," Kepler Research analyst Jon Cox said.

The business model of the world's biggest maker of chocolate products, Barry Callebaut (BARN.S), allows it to pass on the lion's share of higher cocoa costs to its customers. Food giants Kraft Foods KFT.N and Nestle (NESN.VX) are among its clients.

RISES & RECIPES

While heavyweights like Nestle, whose Swiss unit makes Cailler chocolate, remain rather evasive on potential price hikes for chocolate, smaller companies are more outspoken.

"Cocoa prices have risen more than those of other raw materials like sugar, milk, nuts or almonds. We raised prices by 2 percent in 2010, which was not enough to offset higher input costs," said Jean-Baptiste Maugars, managing director of Geneva-based artisan chocolate manufacturer Favarger.

Chocolat Frey, owned by Swiss retailer Migros, also had to put up prices on some products last autumn. "If cocoa prices rise further, price increases will be inevitable, in Switzerland as well as abroad," spokeswoman Marianne Jordi said.

Chocolate is one of Switzerland's best-known products, along with cheese and watches. The 18 members of chocolate industry body Chocosuisse increased sales by 2.4 percent to 1.74 billion Swiss francs ($1.79 billion) in 2010. More than 60 percent of their production was sold abroad.

Many chocolate makers have already increased prices, which will make it difficult to negotiate another round with retailers, Vontobel analyst Claudia Lenz said.

"When the price increased significantly we saw that some companies changed the recipes in emerging markets, using less cocoa butter and more cocoa compound, as this ingredient is cheaper," she said.

For the premium segment most Swiss chocolate makers are active in, however, this is not a viable option as quality is their biggest selling point.

Sylvia Kaelin, spokeswoman of premium chocolate maker Lindt & Spruengli, which is known for gold foil-wrapped Easter bunnies, said reformulating recipes was out of the question.

"Our customers are aware that we stick to quality and this is why they are normally willing to understand why prices have to be increased," she said.

Lindt & Spruengli raised prices by about 1 percent this month and further hikes could not be ruled if the cost of cocoa beans went up significantly, Kaelin said.

(Editing by Jason Neely)

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