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Cocoa prices hit record highs

By staff reporter , 08-Dec-2009

Confectionery manufacturers are facing increasing cost pressures as cocoa futures prices hit their highest levels for 25 years on supply fears.

On Monday, cocoa futures climbed to the highest level since 1985 in London, boosted by speculation that supplies from the world's leading producer Ivory Coast may start to dwindle soon as disease is affecting yields there.

London's March cocoa rose about one per cent, to a peak of £2,249 a tonne. The story was similar in New York where the benchmark March cocoa contract crept up $2 to finish at $3,378 per tonne, according to the International Cocoa Organisation (ICCO).

Cocoa production in the Ivory Coast has been hindered by a severe lack of infrastructure and insufficient efforts to tackle pod disease, which, according to industry experts, limit its readiness to be able to respond to long-term growth in demand for chocolate.

And as the chocolate manufacturing industry struggles to grapple with the rising cocoa prices, Fitch ratings predicts a flurry of M&A activity in the sector with the larger players looking to expand into the emerging markets of India, Russia and China.

According to Andrew Wood, senior research analyst at Sanford Bernstein, Kraft has mismanaged its Cadbury takeover attempt but is still the favourite to get the deal done.

Other potential suitors for Cadbury have either come forward or been rumoured to be considering an offer. There has been speculation that Kraft could make a joint bid with either Hershey or Ferrero, and that either or both could make an offer jointly or separately, and there has been media speculation that Nestlé could be considering a bid.

There have also been rumours that Cadbury could consider making a ‘Pac-Man’ bid for Kraft’s confectionery business.

Wood said that he thought that this latter option would be “great for Cadbury, but is very unlikely to succeed.”

However, despite the rumours, a Nestlé bid would be “a big surprise”, according to the analyst, although it could be a positive move for the world’s largest food company, to make it “a global leader in the attractive confectionery category”.

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