Cocoa crisis: The rising price of chocolate

I hope you enjoyed your chocolate Easter eggs this year, because they may be the last that you will get.

Over the past decade the price of chocolate has been steadily climbing. Since 2012 cocoa prices have risen by 60% and they are expected to continue to rise by 3-5% per year in the upcoming few years. And if that doesn’t leave a bitter taste in your mouth, one forecast predicts supplies to run out by the end of 2016!

So what is the cause of this increase?

Growing demand

One reason for the rising prices is the increase in demand for chocolate. ChocolateDue to globalisation, a growing middle class and higher levels of disposable incomes in developing countries like China and India, consumers around the world are developing an insatiable appetite for the sweet stuff.

Globally consumers are gorging on 7.1 million tonnes of chocolate a year and Australians are partly to blame. The average Australian eats up to seven kilos of chocolate each year, whereas in China this figure is only around 100 grams per person –  though given their large population this can add up to a whole lot of chocolate!

Dwindling supplies

Cocoa trees are grown in developing countries near the equator and supplies are suffering due to bad weather conditions, natural disasters, crop diseases and poor farming methods.

And to make matters worse, the rising cost of living and low wages for farmers are forcing young people to leave the industry and find work in the cities.

If demand keeps rising and supply dropping we are set to be in a deficit of 100,000 tonnes of chocolate per year within a few years!

 So what action can chocolate companies take and what impact will this have on the price of chocolate?

1. Increase the price of their product

Market price is influenced by the forces of supply and demand, so if demand increases and supply decreases this will undoubtedly have an impact on our wallets. But raising prices might not be the best option for companies either.

While chocolate is highly desirable for many, it is not a necessity. Customers who are more price sensitive may look for alternative treats, such as lollies, if prices were to rise. This would lower the profit that companies receive. According to Iacobucci (2013) what companies need to find out before changing their prices is: how elastic is demand for this product and by how much will sales decrease if prices increase?

2. Decrease the size of their product

Some chocolate manufacturers have been sneakily decreasing the size of their chocolate bars and blocks. This pricing strategy allows companies to receive more profit per unit without changing the actual price. For example, in 2015 Cadbury reduced the size of their family blocks from 220g to 200g, which was the third time they have downsized since 2009. This tactic may seem deceitful and turn customers off the brand.

3. Produce cheaper forms of the product

Another way to keep prices down is to produce cheaper forms of chocolate, but the downside is that this might affect the reputation of the brand. Low prices are often associated with low quality, and a true connoisseur would surely taste the difference.  Would you still eat your favourite brand of chocolate if it had a milder, more artificial taste?

4. Utilise more sustainable methods of farming

Chocolate companies, like Nestle and Hershey’s, are investing in sustainable farming projects. But sustainable products cost more to produce and research shows that if consumers have a choice between the original product and a higher priced, sustainable product, they are more likely tCocoa farm in Ghanao choose the cheaper option.

If the chocolate industry is to survive in the long term, marketers will need to show consumers the value of spending more money on sustainable chocolate.

So what is the take home from all this?

Well, unless you are willing to fork out large sums of money for your Easter eggs next year, I suggest you start stockpiling now. If you are a chocolate lover like me, savour the flavour while you can, because it looks like we are heading into a chocolate deficit.

Reference:

Iacobucci, D 2013, Marketing Management (MM4), South-Western, Cengage Learning, Mason.

Written by: slessels81 (211235102)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s