Goshen News, Goshen, IN

Community News Network

November 12, 2013

The rise of big chocolate

WASHINGTON — It's an industry that's largely invisible to consumers, yet central to feeding the world's sweet tooth. Cocoa processing - the process of turning raw cocoa beans into powder, liquor and butter - is a major step in creating the candy bars and truffles that line store shelves. And thanks to a recent pair of recent business deals, it's an industry that may never be the same.

Big chocolate is about to get even bigger.

Earlier this month, Reuters reported that commodity behemoth Cargill plans to spend up to $2 billion to buy agribusiness giant Archer Daniels Midland's (ADM's) cocoa business. If the deal goes through, it'll be the second massive industry tie-up of the year: in July, Switzerland-based chocolate manufacturer Barry Callebaut scooped up the cocoa unit of Petra Foods for $860 million, becoming the world's largest cocoa processor.

Once fully completed, the two deals will bring more than 60 percent of the world market for cocoa processing under the control of two companies - the latest step in a slow consolidation of the industry that has been ongoing for decades.

While the big companies who buy from these processors - Hershey's, Mars - don't have much to fear, independent chocolatiers around the world are anxious that the deals could not only result in higher prices, but also sap diversity, as these new choco-superpowers no longer have to cater to the special taste and texture requests of smaller producers. But the deals have also got experts worried about the well-being of the people who sell the raw materials to companies like Cargill and Callebaut: cocoa bean farmers, often from the world's poorest countries, who now may face even lower prices for their products.

"It's quite a concentrated market already, and [this deal] may give the big players even more market power," says Laurent Pipitone, director of the economics and statistics division at International Cocoa Organization.

With its purchase, Cargill would end up with 35 percent of the global cocoa processing market, putting it ahead of Callebaut's 25 percent. Many experts say the market for cocoa processing was excessively consolidated even before the latest deals; if the Cargill deal goes through, it will mark the reduction of what was once more than 10 independent firms into two mega-players.

Cargill entered the business in 1987 by buying up General Cocoa Company and Gerkens Cocoa. It has since purchased Wilbur Chocolate Company, OCG Cacao, and Toshoku, as well as a couple of cocoa processing plants from Nestle. ADM snagged some sizable companies of its own before the sale: in 1997, it purchased the Grace Cocoa Company, and in 2009 bought up Schokinag, a prominent German producer. Barry Callebaut, meanwhile, was itself formed through a 1996 merger between Cacao Barry and Callebaut.

Chocolatiers say these mergers mean a further reduction in their sourcing options. Santi Falcone, owner of the independent Dante Confections in North Billerica, Mass., says he relies exclusively on Cargill and ADM for his chocolate. He currently has a six-month contract with Cargill but frequently relies on supplies from ADM if there's a sudden shortage or delay, as he experienced in late October when orders spiked and he had to buy additional cocoa for immediate delivery on short-notice. If the takeover goes through, he said, he'll have no alternative sources: Cargill also bought out his previous supplier, Peter's Chocolate.

"I don't know another company," he said. "There used to be a lot of companies in New York, New Jersey, but they all got gobbled up."

The biggest processors often have long-term partnerships with the biggest confectioners, said Christophe Van Riet, a Boston distributor for mid-sized Belgian chocolate companies. Barry Callebaut, for example, has a long-term contract with Hershey's, which means, Van Riet says, "they don't have to be responsive to the smaller Small and mid-size confectioners have traditionally been able to request specific blends and recipe mixtures from cocoa processors. But as the number of sellers has thinned, chocolatiers struggle to procure these specialties. "When it comes to Belgian chocolate, there is not that much variety anymore," says Van Riet. He explains that his customers "are very nervous" as the consolidation in the industry continues.

By bulking up, Barry Callebaut and Cargill are positioning themselves for a booming market. Retail chocolate prices in the United States have risen by 7 percent over the last year, while wholesale prices have increased by 45 percent since 2007. Euromonitor International estimates chocolate sales will rise 6 percent next year, and cocoa traders say that wholesale prices could reach a record high by the holidays.

Cocoa bean prices have soared partly due to bad weather in West Africa and growing demand from Western Europe, Latin America and Asia. Speculative investors have also poured money into cocoa contracts, boosting futures prices. On Friday, the Commodities Futures Trading Commission reported that money managers held 99,871 of these bullish bets, the largest amount since 2006.

For years, development experts have urged poor nations to climb their way out of poverty by selling their goods in open markets. But even before the recent mergers, a U.N. report from 2008 noted "oligopsonistic structures in cocoa purchasing" that deprived cocoa growers of bargaining power and made collusive behavior among the big companies more likely. The report also observed that growers in three of the major cocoa-producing countries in Africa - Cameroon, Ivory Coast and Nigeria - saw the prices they received for their beans fall relative to world cocoa prices between 1985 and 2005, a period over which processing companies and exporters consolidated and increased their buyer power.

The cocoa production industry has been under scrutiny since a series of articles in the early 2000s documented widespread abuse of child labor and trafficking on West African cocoa farms, where 70 percent of the world's cocoa is produced. Since then, governments and industry have brokered international agreements and donated millions of dollars to ending such exploitation, and last year Cargill outlined its commitment to improving farmers' well-being, and ensuring a sustainable cocoa chain through the "Cargill Cocoa Promise," including running agricultural training programs for growers.

 But so far, no independent studies have documented whether such efforts to ensure corporate social responsibility counterbalance the effects of diminished competition. It remains to be seen whether even less pricing power for African growers could lead to a return to past forms of labor exploitation, as tight margins grow even tighter.

         

Analysts believe regulators may attempt to restrain big chocolate's growth. When the European Commission approved the July deal between Barry Callebaut and Petra, regulators said they were assured that competition from ADM and Cargill would provide sufficient alternatives. The European Commission might, for instance, only permit Cargill to buy up only some of ADM's operations, or require that it divest some existing operations before it proceeds. Analysts predict regulators are especially likely to scrutinize overlapping facilities in the Netherlands, Germany, and Belgium, and possibly in Brazil.

But these decisions will be made at E.U. headquarters, not by consumers or producers. Will the voices of West African farmers be heard all the way in Brussels? Will your favorite chocolate bar never be the same? With the rise of Big Chocolate, it may be the little guy who pays the biggest price.

           

1
Text Only
Community News Network
  • Smartphone kill switches are coming

    Smartphones need kill switches. It's a relatively easy solution to the pricey (and irritating) problem of smartphone theft. But who would have thought that the big carriers would team up with Apple, Google, Microsoft, Nokia, Samsung and lots of other manufacturers to voluntarily begin adding the technology by July 2015? The cooperative spirit! It makes so much sense!

    April 18, 2014

  • Why do wolves howl?

    Of all the myths that dog the wolf, none is more widely accepted than the idea that wolves howl at the moon. Images of wolves with their heads upturned, singing at the night sky, are as unquestioned as a goldfish's three-second memory or a dog's color-blindness (both also myths).

    April 18, 2014

  • Biggest student loan profits come from grad students

    This week, the Congressional Budget Office projected that the federal government would earn roughly $127 billion from student lending during the next 10 years.

    April 18, 2014

  • quake.jpg Pennsylvania won’t take action following Ohio ruling on quakes, fracking

    Pennsylvania officials plan no action despite new Ohio rules on drilling that affect a seismically active area near the state line.

    April 18, 2014 1 Photo

  • VIDEO: Boston bomb scare defendant appears in court

    The man accused of carrying a backpack containing a rice cooker near the Boston Marathon finish line on the anniversary of the bombings was arraigned Wednesday. He's being held on $100,000 bail.

    April 17, 2014

  • Consumer spending on health care jumps as Affordable Care Act takes hold

    Nancy Beigel has known since September that she would need hernia surgery. She couldn't afford it on her $11,000 yearly income until she became eligible for Medicaid in January through President Barack Obama's signature health care law.

    April 17, 2014

  • The case for separate beds

    The other night I slept on a twin bed in the guest room of the house I share with my husband and our two kids.
    It was the best night's sleep I've had in years.

    April 17, 2014

  • Raw oysters spike U.S. rise in bacterial infections, CDC reports

    Raw oysters, so good with hot sauce, increasingly can carry something even more unsettling to the stomach: A bacteria linked to vomiting, diarrhea and pain.

    April 17, 2014

  • To sleep well, you may need to adjust what you eat and when

    Sleep.  Oh, to sleep.  A good night's sleep is often a struggle for more than half of American adults.  And for occasional insomnia, there are good reasons to avoid using medications, whether over-the-counter or prescription.

    April 16, 2014

  • Doctors to rate cost effectiveness of expensive cancer drugs

    The world's largest organization of cancer doctors plans to rate the cost effectiveness of expensive oncology drugs, and will urge physicians to use the ratings to discuss the costs with their patients.

    April 16, 2014

Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.
AP Video
Raw: More Than 100,000 Gather for Easter Sunday Raw: Greeks Celebrate Easter With "Rocket War" Police Question Captain, Crew on Ferry Disaster Raw: Orthodox Christians Observe Easter Rite Ceremony Marks 19th Anniversary of OKC Bombing Raw: Four French Journalists Freed From Syria Raw: Massive 7.2 Earthquake Rocks Mexico Captain of Sunken SKorean Ferry Arrested Raw: Fire Destroys 3 N.J. Beachfront Homes Raw: Pope Presides Over Good Friday Mass Raw: Space X Launches to Space Station Superheroes Descend on Capitol Mall Man Charged in Kansas City Highway Shootings Obama Awards Navy Football Trophy Anti-semitic Leaflets Posted in Eastern Ukraine Raw: Magnitude-7.2 Earthquake Shakes Mexico City Ceremony at MIT Remembers One of Boston's Finest Raw: Students Hurt in Colo. School Bus Crash Deadly Avalanche Sweeps Slopes of Mount Everest
Poll

There has been discussion at West Goshen Elementary School to require mandatory student uniforms in the future. How do you feel about the prospect of mandatory student uniforms in a public school environment?

I think it’s an excellent idea that is way overdue
I think it’s a bad idea and would be restrictive for students and parents.
     View Results