New York, March 22 - Chocolate lovers may notice their habit is getting more expensive in the coming months, following a rally that sent the price of cocoa close to a four-year high after a drought hit the world's key grower.
A withering dry spell that farmers called the worst in living memory has hit Africa's Ivory Coast, the main grower of cocoa beans used to make chocolate. This, combined with tight supplies, has caused price spikes in New York and London cocoa markets.
"I think (chocolate) prices may go up but I also think it will be a product-by-product increase," Erin Ashley Smith, an analyst who follows the confectionary market for Argus Research Company in New York, told Reuters in a phone interview.
Germany's chocolate industry -- Europe's largest -- will have to consider raising retail chocolate price if cocoa futures remain this high, said Karsten Keunecke, joint chief executive of German confectionery industry association BDSI.
"When commodity prices undergo sustained rises as is now happening, industry must reexamine how it calculates its prices and its raw material purchasing costs otherwise it cannot survive in the long term," Keunecke said.
His view echoed that of the chief financial officer of Swiss chocolate maker Lindt & Spruengli's , who said this week he saw cocoa prices rising in 2007.
"The trend is pointing upwards," said Lindt CFO Dieter Weisskopf.
Chocolates fly off the shelves in the top consuming regions of Europe and North America during Valentine's Day in February, Easter in the spring, Christmas at year-end, as well as other holidays.
TIMING OF PRICE RISE MULLED; CHOCOLATE DEMAND SURGES
With the drought in parts of West Africa killing off younger cocoa trees and reducing the yield potential on others, a question for some analysts is the timing of any price rise which could show up on retail shelves.
Smith, who closely follows U.S. giant chocolate maker Hershey Co., could not say when prices of chocolate bars will go up due to high cocoa prices. Large companies typically keep large inventories and can take up to six months to implement price hikes once they are announced.
Chocolate companies normally buy supplies several months in advance, so it could take time to draw down cocoa stocks.
Their ability to replenish those stocks may be limited by a supply crunch caused by the poor growing conditions in the main cocoa-growing regions of West Africa including Ghana, the world's No. 2 producer, and the Ivory Coast.
This has led to forecasts of a large global cocoa deficit in 2006/07. Estimates range from the International Cocoa Organization's shortfall of 103,000 tonnes to a deficit of 250,000 tonnes by Hans Kilian, a respected independent analyst closely followed by the cocoa industry.
Chocolate's popularity has revived after years of criticism by health buffs who linked chocolate snacks with obesity. That view has waned as tastes turned toward dark chocolate, made with more cocoa. Scientific studies have shown it contains large amounts of flavanols, antioxidants that may lessen the risk of heart attacks and strokes.
Some analysts believe a price rise, when and if it comes, will not be sharp.
The cocoa market rally "can have some impact on the final price (of chocolates) but it's going to have a limited impact," said Francisco Redruello, food industry analyst for Euromonitor International in London. He noted that packaging and advertising costs add more to the price of chocolates.