A specific sector of global agriculture is experiencing pricing pressure, and it's a bitter pill to swallow.
Cocoa prices have surged by more than threefold in the past year, posing a significant challenge for candy makers and other food producers reliant on this ingredient for chocolate production.
Crop disease and decreasing farmgate prices in West Africa, where the majority of the world's cocoa is cultivated, have compelled farmers to switch to more profitable crops like rubber instead of cocoa.
The rising cost of cocoa presents a challenge for food companies, particularly at a time when many have already increased prices to address inflation affecting various commodities. This has led to consumers becoming more selective in their purchases and expressing dissatisfaction with grocery store prices. As consumers prioritize value, candy companies are left with limited flexibility in adjusting prices to offset the increased cost of cocoa.
Shrinkflation, a term that has become increasingly popular among consumers in recent years, refers to companies reducing the quantity or weight of a product while maintaining the same price. However, consumers have become aware of this tactic.
In the short term, companies will need to find alternative solutions and think more innovatively.
J&J Snack Foods CEO Daniel Fachner is closely monitoring cocoa and chocolate prices. The company, known for brands like Dippin' Dots, SuperPretzel, and Hola Churros, produces products for various companies, like Subway's footlong churro.
Chocolate is a popular flavor in its range, featuring treats like a chocolate-filled churro.Fachner has suggested a potential solution for reducing the number of chocolate chips from 12 to nine in a specific product. He also mentioned that J&J is exploring alternative ingredients that could be used in some of its recipes.
Although this year has seen an unprecedented increase in cocoa prices, it is probable that food companies will face similar challenges in the future. Analysts are forecasting another cocoa deficit next year, although it is expected to be less severe than the current season.
However, issues like government-imposed farmgate prices and climate change are likely to continue to affect the cocoa harvest. In addition, the use of child labor and slavery in cocoa farms in West Africa has led to legal actions and negative publicity for candy companies.
In the future, this implies that numerous companies will need to seek out sustainable alternatives. This could involve exploring options other than cocoa in certain instances.
At least one major candy company is not contemplating any significant alterations to its product formulas.
Furthermore, there is the possibility of expanding into other types of snacks. When Kraft established Mondelez as a separate entity more than ten years ago, its portfolio already included non-chocolate snacks such as Triscuit, Sour Patch Kids, and Wheat Thins, in addition to its chocolate brands like Milka, Oreo, Toblerone, and Chips Ahoy.
Other candy companies have emulated its strategy by incorporating additional salty snacks into their product offerings to stimulate further growth.