London/New York, Oct 2 - The global economic slowdown will soften global demand for cocoa, but consumption will be patchy while a sharpened appetite for chocolate in emerging markets will support sales there.
Analysts and industry officials say cocoa cannot escape the malaise afflicting global financial markets and consumer demand, but chocolate is an affordable luxury in the developed world and tastes should withstand the downturn reasonably intact.
"I reckon there will be a softening in demand for commodities generally, and cocoa will not be immune," said Jonathan Parkman, director and head of the agri commodity brokerage at Fortis Commodity Derivatives in London.
"We're likely to see a significant negative impact upon growth in demand for chocolate products."
Jean-Marc Anga, who leads the statistics team at the International Cocoa Organization (ICCO), has said he expected world cocoa demand growth to fall to below 2 percent year-on-year in 2008/09, due to the economic slowdown.
In the last 3-to-5 years, global cocoa demand growth had been running at an annualised rate of around 4 percent.
He referred to disappointing cocoa grindings, a measure of demand for the key chocolate ingredient, in the United States and Europe.
Some analysts said it was inevitable that cocoa consumption would feel the impact of squeezed household incomes.
Marcia Mogelonsky, a senior research analyst with market research firm Mintel International in Chicago, said chocolate retail sales were set to grow moderately in the United States despite the financial crisis.
"Regular chocolate is not super expensive. It's an affordable indulgence at home," she told Reuters.
According to Mintel's annual chocolate confectionery report released in July, inflation-adjusted U.S. chocolate retail sales were projected to increase by about one percent a year from $16.5 billion in 2008 to $17.4 billion in 2012.
The U.S. is the world's biggest market for chocolate confectionery.
PRICES HIT PRODUCTS
U.S. demand will be hurt as manufacturers reduce the size of chocolate products due to the impact of higher cocoa prices, causing people to unintentionally buy less chocolate, said Judy Ganes-Chase, of J Ganes Consulting in New York.
"It's manufacturers that are going to do most of the cutting back for consumers, by altering product sizes. Some might put in thinner coatings. Some might cheapen the chocolate," she said.
Some manufacturers have announced cuts in the size of their chocolate products to counter the impact of rising raw material and energy costs.
"Everyone's shrinking the size of their products. They don't want to obviously pass the increases onto consumers," Mogelonsky said.
In Europe, consumer demand appears to be holding for now despite the downturn, but the outlook is brighter in the emerging markets, notably China, India, Thailand and Russia, said a lobbyist for the chocolate and confectionery industry.
David Zimmer, Secretary General of Brussels-based CAOBISCO, which represents over 1,800 EU companies manufacturing chocolate, biscuits and confectionery, said:
"China, India and Thailand would be obvious examples of markets which have been new, coming into cocoa."
"To a certain extent, they have put pressure on cocoa supply. That phenomenon will still be around."
WESTERN LIFESTYLES
Many consumers in Asia aspire to Western lifestyles, and strong economic growth in recent years has boosted demand for cocoa and chocolate products, although consumers in developing countries will be more sensitive to rising prices.
"Global chocolate consumption will continue to grow because people in developing countries are now aware of the benefit of eating chocolate for health," said Piter Jasman, chairman of the Indonesian Cocoa Industry Association.
"This is also due to the availability of various cocoa-based products, so we expect demand for chocolate to continue to grow, especially in Indonesia, China and India, with growth of 10 to 20 percent annually."
Ganes-Chase said that while chocolate is a cheap luxury in developed countries, people on much lower incomes in developing countries may buy less of it in tough economic times.