Cocoa is an important crop around the globe where the commodity is a cash crop for the growing countries and a vital import for the processing and consuming nations. The global cocoa market is composed of several stakeholders such as buyers, farmers, shipping organisations, distributors, and chocolate processors. The consumption of cocoa occurs in various forms such as through chocolate bars and drinking variants. Consequently, the demand for cocoa is influenced primarily by the market consumption of the specific end products such as chocolate bars and coatings as well as the demands in the confectionary sector. The other industries that affect the demand for the chocolate products include food and beverage, pharmaceuticals, and cosmetics. By cocoa type the market is segmented into the various types such as cocoa butter and liquid. The demand for cocoa beans is also affected by the increasing globalisation and the soaring economic growth in Asia and Africa (Tothmihaly, 2017). On the other hand, the supply is affected by the factors such as production quantities as well as other market elements like the supply chain and logistic dynamics. The changes in the prices are based on the supply-demand dynamics. Consequently, the trends in prices at any given period are due to the variation in the supply and demand. According to Tothmihaly (2017) the price volatility in the cocoa market occurs due to factors such as weather and political conditions in the production areas like in the West Africa.
The cocoa market experts and analysts depend on the historical, projected, and current levels of production, supply, and price dynamics to provide reports that can be used as the basis of decision making. The purpose of this essay is to present an analysis of the trend in cocoa prices from 2010 to 2017 with the aim of providing a discourse on how the supply and demand have affected the prices in the European market in the identified time period. Similarly, the discussion is centred on the determination of the consequences of the rise and fall of the cocoa producers on the chocolate producers and suppliers as well as the impact on the prices of products such as Cadbury’s Dairy Milk bar and Nestle’s Kit Kat bar.
THE COCOA MARKET IN EUROPE
Europe has dominated the chocolate industry since 16th century after a Spanish conquistador brought pods from Mexico. The assessment of the market is undertaken to establish the trends that affect the prices and the consumption patterns in the market. The dominance of Europe in the world cocoa is currently due to the fact that the continent is not only the largest consumer of chocolate but also the biggest producer and exporter of the products. The dominance is also due to a global market share of about 70%. On the other hand, West Africa countries are collectively the biggest producers of the global cocoa where they contribute up to two thirds of the produce into the international market (Adegoke, 2018). Côte d’Ivoire is for instance accounts for about a third of all the cocoa produced globally. The chocolate market in Europe is further expected to grow by up to 3% in the period 2018-2022. Some of the drivers of the increased growth include the rising demand for dark and organic chocolate in the region as well as the emergence of the online commerce technology that enables the vendors to reach a large consumer base. The European chocolate market is segmented into dark, milk, and white variants.
TRENDS IN AVERAGE PRICE CHANGES IN 2010-2017 PERIOD
Prices of commodities are subject to fluctuation due to the market factors with the law of supply and demand having a significant on the price changes as observed with different products at various time periods. Table 1 is a summary of the price changes in each of the identified years. Figure 1 is a graph showing the changes in price per unit during the period 2010 to 2017 in the European market. The data used in the graph is obtained from statista.com with the prices shown in US dollars.
Year
price per unit (US $)
2010
4.83
2011
5.11
2012
5.37
2013
5.3
2014
5.33
2015
5.29
2016
5.34
2017
5.42
Table 1: Summary of the average market price changes between 2010 and 2017 (statista.com)
Figure 1: Graph showing the trends in average price changes in the European market 2010 to 2017
Trends observed from figure one indicates that the average price per unit of cocoa increased steadily from 2010 to 2012. The price fell to $5.3 in 2013 from $5.37 in the previous year. The price improved slightly to $5.33 in 2014 but fell $5.29 in 2015. There was an increase in the price of the product in 2016 and 2017 with averages of $5.34 and $5.42 respectively. The increase in the price can be attributed to the rise in demand for quality cocoa products in the European market.
FACTORS OF DEMAND
The demand factors are primarily associated with the preferences of the dark and organic chocolate. The dark chocolate is considered a healthier substitute as compared to the conventional milk chocolate. The demand for the type of chocolate has therefore increased significantly over the last five years in Europe. Apart from the health benefits many consumers prefer the dark variant as a gifting option to other people. The demand for both organic and dark chocolate has seen a growing number of vendors venturing into the segment. The launching of new products featuring dark chocolate is also another indicator of the increasing demand for the cocoa product. The growth in the dark chocolate industry is expected to spur demand for cocoa beans that are processed into the specific products.
FACTORS OF SUPPLY
A report by Ionova (2018) on Reuters shows that the cocoa prices have been pushed due to the scramble for the high quality cocoa beans mainly from Ghana and Ivory Coast. Using the instance of cocoa as a future option traded in London commodities exchange, the reporter highlights that the premiums for the Ghanaian beans have increased to 200 pounds per tonne. Similar increase is manifested in the high quality Ivorian beans that are trading with as much by 85 pounds over the spot futures prices. The pressure on supply is attributed to the decline in quality and volume of the main crops in Ghana and Ivory Coast that are the world’s top producers. The other major influence on the supply is based on the fact that Ivory Coast cocoa’s marketing board is seen to have sold forward up to 170,000 tonnes more than what the country can produce currently (Ionova, 2018). The supplies to Europe have also been reduced due to the increased shipping to the United States. While the decline in the stocks could be replaced with supplies from countries such as Cameroon and Nigeria, the crunch in the supply further arises due to the slow delivery and exports out of the mentioned countries.
TECHNOLOGY
Technology as a major element that influences the consumption dynamics of cocoa in the European market include the essence is demonstrated in the emergence of the influence of online retailing. E-commerce plays a vital role in enabling the chocolate manufacturers to expand their customer base and improve their profit margins. The online and e-commerce platforms are essential for facilitating business-to-business (B2B) and business-to-consumer (B2C) operations. The development of the internet as a technology is also associated with high number of users who possess a ready to buy attitude is also another element that increases the suitability and popularity of the online channels for purchasing the chocolate and cocoa products.
PRICE OF THE PRODUCTS AND PREFERENCES
While cocoa beans can be processed into various end products as mentioned in the earlier sections of this paper, the main product considered include the beverage market segment and entails the cocoa powder and drinking chocolate. Alternative products to the identified segment are found include the hot drink commodities such as coffee. The price for coffee as a possible substitute product is US$13.49 in 2018. On the other hand, the average price per unit of cocoa in the same market is US$5.49 in the same period. Coffee as a substitute product is more expensive than cocoa. The price variations can be attributed to factors such as cost of processing and marketing as well as the perceived values as perceived by the consumers. On the same note, coffee is preferred by the consumers due to its stronger stimulation effects with further significant effect on the central nervous system of the individuals. The preference of coffee may also occur due to the distinct taste arising from the caffeine content in the product. While caffeine is one of the most favourite stimulants, there are several health concerns associated with the consumption of the product. Such concerns include possible addiction and caffeine dependence, headaches, and blood pressure issues in instances of excessive consumption (Abdalla, 2015). On the other hand, cocoa has health benefits due to the presence of the flavonoids that acts as major antioxidants that act as body’s defence against the free radicals that entail the molecules that are generated by the body during the metabolism processes. Katz, Doughty, and Ali (2011) highlight cocoa and chocolate products contain more phenolic antioxidants as compared to most foods. Consequently, the cocoa products may be preferred to coffee by the consumers who are highly sensitive about their health and wellness.
PREFERENCES
Consumption patterns and therefore demands are affected by consumer preferences and hence determining the demand for chocolate products significantly. For instance, health and wellness concerns influence the chocolate consumers. Specifically, the desire for healthy living stimulates the demand for high quality chocolate. The European customers are increasingly becoming concerned about the impact of their food intake on their health and wellness. Health benefits from dark chocolate are for instance associated with high percentage of cocoa. Consequently, high quality cocoa with well pressed beans are becoming more popular. The other elements influencing the consumption trends include the increasing demand for fine flavour cocoa.
References
Tothmihaly, A., 2017. How low is the price elasticity in the global cocoa market? (No. 102). GlobalFood Discussion Papers.
Adegoke, Y. 2018. Why Europe dominates the global chocolate market while Africa produces all the cocoa. [online] Quartz Africa. Available at: https://qz.com/africa/1320998/where-does-chocolate-come-from-europe-and-africas-roles-in-the-valuable-market/ [Accessed 15 Aug. 2018].
Abdalla, M.A., 2015. Determination of caffeine, the active ingredient in different coffee drinks and its characterization by FTIR/ATR and TGA/DTA. International Journal of Engineering and Applied Sciences, 2(12).
Katz, D.L., Doughty, K. and Ali, A., 2011. Cocoa and chocolate in human health and disease. Antioxidants " redox signaling, 15(10), pp.2779-2811.
Ionova, A. (2018). European spot cocoa premiums widen as buyers scramble for beans. [online] Reuters. Available at: https://www.reuters.com/article/us-europe-cocoa-premium/european-spot-cocoa-premiums-widen-as-buyers-scramble-for-beans-idUSKCN1GK2D4 [Accessed 15 Aug. 2018].
