Cocoa prices are soaring. Candy makers will need to get creative
How are major candy companies like Hershey and Mondelez currently shielded from the rising costs of cocoa?
Major candy companies like Hershey and Mondelez are currently shielded from the rising costs of cocoa due to their long-term hedging contracts that lock in the prices they pay for key commodities, protecting them from events like this. These contracts give them some lead time to grapple with the issue, as they are likely protected from higher cocoa costs until 2025. However, come 2025, they will likely end up paying much more for their cocoa.
What factors have contributed to the soaring prices of cocoa this year?
Several factors have contributed to the soaring prices of cocoa this year:
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Supply chain disruptions: The COVID-19 pandemic has caused disruptions in the cocoa supply chain, affecting the production and transportation of cocoa beans5.
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Adverse weather conditions: West Africa, which is the largest producer of cocoa, has experienced unfavorable weather conditions, including droughts and heavy rains, which have negatively impacted cocoa production5.
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Burgeoning demand: There has been a steady increase in demand for chocolate and cocoa products worldwide, which has put additional pressure on cocoa prices.
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Climate change: Climate change has led to unpredictable weather patterns, which have affected cocoa production in major growing regions.
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Economic struggles of cocoa farmers: Cocoa farmers in West Africa have been facing financial difficulties due to low cocoa prices, which has resulted in a reduction in cocoa production.
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Speculation in the commodities market: Investors and traders in the commodities market have been speculating on the future cocoa prices, which has further driven up the prices.
What strategies are companies like J&J Snack Foods considering to manage the higher cocoa prices within their product lines?
J&J Snack Foods and other companies in the industry are considering several strategies to manage the higher cocoa prices within their product lines:
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Innovation with new pricing: Companies are looking at their product offerings and considering if the new pricing due to increased cocoa costs is still sellable. They need to ensure that the products can be sold at a low enough cost that the customer could still make a good margin.
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Adjusting ingredients: One strategy being considered is adjusting the number of chocolate chips in a product. For example, reducing the number of chocolate chips from 12 to 9 in a certain product.
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Substitution: Companies are looking for any possible substitutes that could work for some of their recipes. This could involve using alternatives to cocoa, such as cocoa butter equivalents, shea butter, palm oil, or coconut oil.
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Creating non-chocolate products: Some companies may start avoiding the chocolate flavor, especially when it comes to new products. They might focus more on non-chocolate offerings.
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Diversification: Companies are also considering diversifying their product lines to include more salty snacks or non-chocolate products. This strategy can help them drive more growth and be less dependent on cocoa.
These strategies are being considered to adapt to the higher cocoa prices while still providing value to their customers.