Chocolate makers hit by rising raw material costs

Chocolate-lovers may soon find their chocolate dearer if the problems plaguing the industry continue. Raw material costs have risen by more than 20 per cent in the last 10 months.

Although retail prices have not increased, a rise in input costs will force the manufacturers to consider a price hike.

"The prices of cocoa and milk, the chief ingredients used in chocolates, have gone up by 50 per cent, while the price of sugar, another important raw material, has come down. the overall input costs have gone up by 20 per cent. If the prices of these commodities keep increasing, we may eventually have to go in for a price hike," said R S Sodhi, general manager - marketing, Gujarat Cooperative Milk Marketing Federation (GCMMF), which manufactures the Amul brand of chocolates.

The impact of the rise in costs has been severe on smaller players such as Amul.

Bigger players such as Cadbury, which leads the Rs 2,500 crore chocolate market in India with a share of 72 per cent, will find it easier to absorb the surge in input costs as it has products at various price points in the market, said industry experts. Cadbury may also opt for a price hike, albeit marginal, if the current trend continues.

When contacted, a Cadbury spokesperson declined to divulge details on the company's input costs. Asked if the company would go in for a price hike, he said, "We do not have plans to increase prices at this point in time."

Another player in the market, Nestle, which markets chocolates such as the wafer-based Kit-Kat, was unavailable for comment.

The chocolate market in India has only three big players, Cadbury, Nestle and Amul. However, US-based chocolate-maker Hersheys is mulling a foray into the Indian chocolate market through its joint venture with Godrej.

The per capita consumption of chocolate in India is 300 grams compared with 1.9 kilograms in developed markets such as the United Kingdom. Over 70 per cent of the consumption takes place in the urban markets.

The international chocolate makers are also expected to hike their prices. According to reports in the international media, the Switzerland-based Barry Callebaut, which is a $3.7 billion giant in the chocolate industry, may be forced to go in for a price hike as input costs nearly doubled this year.

India imports most of its cocoa requirements. The prices of cocoa have risen globally due to unavailability of the commodity.

Margins in the chocolate industry range between 10 and 20 per cent, depending on the price point at which the product is placed. The input costs in India are under check owing to the 24 per cent decline in the prices of sugar this year.

On the other hand, the milk prices have risen three times across the country. Dairy companies in India have increased the milk prices in tandem with the zooming rates of milk in the international market.