Chocolate lovers in Asia are taking a big bite out of the global cocoa glut.
From India to China, where demand is growing faster than in major markets such as Europe or the US, consumers are eating more chocolate. At the same time, though, big growers in West Africa are harvesting smaller crops.
Top processors Cargill and Barry Callebaut expect those trends to erode a glut that made cocoa one of the worst-performing commodities in the past year.
"The crop probably will not be as strong as last year, and you'll see growth in demand," Harold Poelma, president of Cargill's cocoa and chocolate unit, said in an interview in Singapore. "These two things together make for a modest surplus, which is the expectation that we have now."
Cocoa prices plunged 34% last year and are down again this year after big harvests in Ivory Coast and Ghana overwhelmed demand. Production in the two countries - which account for two-thirds of global supply - is now set to fall, as is the harvest in Indonesia, Asia's top producer.
Citigroup forecasts the surplus will shrink to as little as 50000 tons in 2017-18 from almost 500 000 tons a year earlier.
Top producer Ivory Coast harvested a record crop in the season that just ended, with purchases exceeding 2 million tons for the first time. Output may shrink to 1.88 million tons this year, according to the median estimate in a Bloomberg survey of traders, analysts, brokers and grinders.
Ghana, the second-biggest grower, will delay the start of the new cocoa crop as it waits for the proceeds of a $1.3-billion (R17.8-billion) syndicated loan to pay farmers.
Supply in Asia is also set to decline as government incentives mean Indonesian farmers favour other crops including maize, rice and palm oil.
Production by Asia's biggest grower is expected to shrink by 8% this year and 10% next year, according to agri-tech start-up PT Koltiva. As a result, the country will need to import a record volume of beans this year, Soetanto Abdoellah, the chairman of the Indonesian Cocoa Board, said in an interview in Singapore this week.
That will just add to demand that is already accelerating in Asia as incomes grow and people develop a taste for chocolate. While consumption in Europe and the Americas has eased significantly, it is now also "recuperating", said Ben De Schryver, Barry Callebaut's Asia-Pacific president.
"If the economy continues to grow as we foresee it, we also expect that cocoa and chocolate will grow, particularly in Asia where you have people moving into middle-class incomes and people getting more familiar with the product," Cargill's Poelma said.
Asian demand will probably climb 3%- 4% annually in coming years, compared with long-term global growth of 2%, according to the trading company.
India's annual growth in chocolate and cocoa consumption over the next five years may be close to 15%. While demand in China has been flat in the last few years, it may rebound to 3% to 4% in the future.
- Bloomberg
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