Chocolate gloom inspires compound coating boom in Asia and Eastern Europe, says Cargill

Cargill has rebranded its Gerkens cocoa powder as it hopes to raise its profile to capitalize on demand.

Chocolate woes​

“The news on chocolate has not been that uplifting,” ​Marcel Nouel, product line manager for cocoa powder at Cargill, told ConfectioneryNews.

Increased cocoa butter prices combined with soaring dairy ingredient costs have harmed profits for confectioners. For example in Q3, Hershey reported a 4% drop in net income, Nestle’s confectionery division sales fell 7% and Mondelez’s earning nosedived 11%. The companies all rose chocolate prices during the year in response to mounting cocoa butter prices.

Cocoa powder for stronger profit margins​

“But for the news on the other side – the cocoa powder – the story is a bit different,”​ said Nouel.

Cocoa powder prices have been falling since 2011 and are now around historic lows. Nouel said that the cost of finished products containing cocoa powder had dropped double digits as a result.

He said that the affordability had inspired confectioners to develop new products with cocoa powder that can command stronger profit margins.

Eastern Europe and Asia​

He said that while consumers in developed markets would not accept compound chocolate made from cocoa powder, manufacturers had transitioned to compound coatings in emerging markets such as Eastern Europe and Asia.

In the EU, compound coatings cannot be labelled as chocolate. “In developed markets the legislation is quite clear but in the developing markets there’s a bit more freedom to operate.”​

China and cocoa shell crackdown​

Nouel said that China was a growing market for compound chocolate despite a recent slowdown in its economic growth. “If you compare to developed markets, there’s still impressive growth.”​

He added that since the start of the year Chinese authorities had begun to strictly enforce a ban on using cocoa shells in foodstuffs, which had led to more manufacturers turning to cocoa powder.

Cocoa shells are sometimes ground down and used as a cheaper alternative to cocoa powder, which is derived from cacao beans. The shells are considered unfit for human consumption because they are exposed to the elements, creating a risk of contamination.

What about profitability?​

Cocoa processing in Asia fell 6% in the third quarter, according to the Cocoa Association of Asia. The International Cocoa Organization (ICCO) told us that the fall was due to a lower combined cocoa ratio (the price of cocoa butter and powder versus cocoa beans) that had made cocoa ingredients less profitable for processors.

Nouel said that while that was true, it didn’t necessarily mean demand in Asia for compound coatings was weak because there were many different varieties of cocoa powder and manufacturers used a mix of spot buying and forward buying.

Capacity increase and Gerkens rebrand​

Cargill is constructing a plant in Indonesia to keep pace with powder demand and has expanded its factory in the Netherlands.

The company is also promoting its Gerkens cocoa brand. It has expanded its application support to help manufacturers create signature cocoa powders. “They don’t accept one flavors fits all,”​ said Nouel.

Equipment supplier Bühler told us last year that the global market for compound chocolate would grow faster than regular chocolate as it launched a small capacity compound chocolate machine to capitalize on the area.