Japan's Chocolate Prices to Soar Post-Cocoa Price Doubling

Key Takeaway

• Cocoa prices doubling since the year's start will lead to a significant retail price hike for chocolate in Japan by September.
• Itochu Corp. anticipates processors will use more substitutes like cocoa-butter equivalent to manage soaring costs.
• Japan, relying on 75% of its cocoa imports from Ghana, may shift more towards Ivory Coast supplies amid market tightness.

Cocoa Price Surge Hits Japan

Cocoa prices have seen an unprecedented surge, with New York futures more than doubling since the start of the year. This spike is attributed to crop declines in Ivory Coast and Ghana, the top suppliers, which has left buyers scrambling for beans. The volatility in the market is exacerbated by traders pulling out, making prices more susceptible to large swings. Itochu Corp., a major Japanese trading company and cocoa importer, has warned of an inevitable spike in retail chocolate prices in Japan, one of Asia's largest cocoa buyers. The company also anticipates that processors will increasingly turn to substitutes to manage costs.

Impact on Japanese Consumers and Industry

The retail impact of the cocoa price surge is expected to be felt in September, following a peak in cocoa prices from March to April. Despite existing stockpiles allowing processors to operate normally for now, the price spike is anticipated about six months later. Chocolate prices in Japan have already seen a rise of about 10% compared to the previous year. Japan, which sources approximately 75% of its cocoa imports from Ghana, may need to import more from Ivory Coast, despite Japanese consumers' preference for Ghanaian cocoa. This shift is driven by uncertainties in supplies from Ghana.

Alternatives and Market Adjustments

Itochu's cocoa and sesame section manager, Yoshitomo Yamada, mentioned that Fuji Oil Co., under Itochu, could provide a solution to the cocoa crunch by producing cocoa-butter equivalent (CBE) from palm and sunflower oil. This substitute is unlikely to be noticeably different to consumers and could help manage the surge in cocoa prices. Demand for substitutes like CBE is expected to rise in Asia, reflecting the region's diverse purchasing power.

Street Views

• Yoshitomo Yamada, Itochu (Neutral on cocoa market):

  "No one knows what to do. We haven’t had this level of tightness before. We don’t know if $12,000 might be appropriate, or if $15,000 might be appropriate, or $8,000."