Are we heading for a chocolate calamity?

As the cost of producing chocolate hits its highest level in two generations, are the chocolate cups of Flanders a bit less brimming than they were last year?

These, you see, are dark days for chocolate manufacturers. Besieged by an unholy trinity of soaring commodity prices, hated hedge-fund speculators and political instability in the world’s cocoa-producing regions, they have had to resort to extreme measures. Maltesers packets are smaller. Dairy Milk is one segment down. The cheapest Toblerone packets have lost a triangle.

So at the world’s premier chocolate trade show, in an exhibition centre in Cologne, there is a fatalistic atmosphere. “The cocoa business,” confides one chocolatier, a chubby man with a white moustache, “is run by a bunch of f***ers.” Another goes farther, thinking the unthinkable. “Our concern,” he warns darkly, “is that alternative sugar-based products may end up being bought instead.”

William Whitaker, from the fourth generation of chocolate-making Whitakers, has been managing director of his Yorkshire-based company since the mid-1980s. “In 25 years I’ve never had so much to contend with,” he says. “We have a double whammy: the costs of what we do are going through the roof, and we’re in recession.”

In response, his company is diversifying. Behind him is a display of chocolates for the corporate market, branded with various business logos. Beside it is a display of chocolate-light soft centres. But this will work only for so long. “Eventually,” he says, “we will have to pass on the costs.” And he is angry: “There’s no reason for prices to be so high. It was a bumper crop.”

The cocoa market, of course, is not alone in experiencing high prices. Food manufacturers worldwide face the same difficulties: most commodities are hitting record highs. But there are longer-term issues in cocoa, where prices have risen from £600 per tonne in 2000 to £2,239 today — a rise prompted by unpredictable factors. “Every time there’s an indication that things might improve, we get another problem,” Whitaker says.

Late last year, that problem was characteristically unlikely: Ivory Coast got two presidents.

Alassane Ouattara was, by most accounts, the winner of the Ivorian presidential election. In fact, pretty much the only person who contends otherwise is a man called Laurent Gbagbo. Unfortunately for Ouattara, Gbagbo was the president he had hoped to defeat, and he still controls the country’s security apparatus. So it is that, in a farce worthy of an Evelyn Waugh banana republic, Ouattara has spent the past two months under siege in a hotel room.

None of this would be of more than passing interest in the West, were it not for the fact that Ivory Coast is not a banana republic; it is a cocoa republic. Some 40 per cent of the world’s cocoa comes from this small West African state — or, at least, it used to. Because, from his hotel room, Ouattara has called on the world to enforce a cocoa export ban, cutting his rival’s funding and sending prices rocketing.

The industry, already struggling, is having to innovate. Angus Kennedy is the editor of Kennedy’s Confection, the leading British trade magazine for the sector. I meet him for lunch in the cafeteria of the Cologne trade fair, where we enjoy a rare, and extremely welcome, savoury meal (“After a morning here,” Kennedy confides, tucking in to a bread roll, “you get this terrible dry headache from too much sugar. Everyone’s got it”).

He believes that, although chocolate may be pricey, recipes are unlikely to be altered much: there won’t be less chocolate in our chocolate cakes or fewer chocolate chips per biscuit. Rather, the way foods containing chocolate are presented may change.

“You’ve got a certain type of packaging coming in,” he says. “It’s a bit Orwellian. “It’s called portion control and it’s very big right now. You buy a box and each of the biscuits is individually wrapped, so it takes longer to eat. You have to work for it. You eat less but hopefully enjoy it more. At least, that’s the theory. The packaging industry loves it.”

The packaging industry is not the only beneficiary of record prices. To the world’s chocolatiers, telling the story of how this became their darkest hour, there is a bigger bogeyman even than the intransigent former Ivorian president. Everywhere you go at Cologne this year, one name keeps being mentioned. It is not Gbagbo. It is Armajaro.

Armajaro is a UK hedge fund specialising in cocoa. Last summer it made an extraordinary purchase: it bought 240,000 tonnes, and in doing so made the industry extremely angry.

“You can’t conceive it,” Martijn Koenders, the managing director of Pally Biscuits, says of the deal. “One day a guy wakes up in the morning and says, ‘I’ll just buy the entire European inventory of cocoa’. It’s unique.”

Betting that prices would rise, Armajaro made a purchase so big that it moved the market for all the other purchasers, most of whom wanted actually to use the cocoa rather than just speculating in it.

As Pally is a biscuit-maker that mainly supplies supermarket own brands, cocoa is a relatively small item on its list of ingredients. Nevertheless, this and other price rises mean that the company is facing huge overheads. For now, producers and retailers are absorbing the cost, but Koenders says that this must change. “In the end, the consumer has to be confronted with the price increases that we face. It will take some months but everybody has to go up. This is the new reality.”

It is a new reality from which Armajaro has done rather well. But have genuine producers suffered as a result?

Armajaro refuse to be interviewed on the record or to answer questions about the effect of their purchase on the market. Instead, they e-mail a statement: “Having agreed purchases with a variety of sellers, the CC+ Fund [the fund for cocoa investors] took delivery of 240,500 tonnes of cocoa in July 2010. All of this cocoa was subsequently sold by the fund between September and December 2010. The purchases were made on forecasts of a poor harvest, but in fact the harvest was better than expected, which resulted in a drop in international cocoa prices.” So in other words, far from being drivers of a capricious market, they were its victims, they say. Well, sort of.

When I ask if this means that the deal went badly for them, the press officer will not give an answer but points me to a news report which says that the CC+ Fund did very well this year. It seems that, for a hedge fund, the only thing worse than being accused of profiteering from others’ difficulties is to be accused of not profiteering.

There is, nevertheless, an easy bash-the-bankers air to some of the confectioners’ complaints. In fact, an equally valid interpretation of cocoa prices is that they are not soaring but recovering after a 20-year slump. The period from the mid-1980s to the mid-2000s is, historically, a low point, with today’s prices closer to the 20th-century average. In today’s money, cocoa sold for £3,000 a tonne in the 1970s.

With or without speculators, most people think that these prices are here to stay. What’s more, there is one harder-to-bash beneficiary of high cocoa prices: the farmers themselves.

“The farmers are not stupid. They make sure they get paid more when the market is up,” says Eveline Raymans, director of Tony’s Chocolonely, a Dutch ethical-trading brand. “But not as much as they should be. The industry doesn’t help them, and the millions made trading in London and New York has no effect on them.”

A group of American potential buyers walk past her stand. “Nice logo,” one of them remarks. “This one’s Fairtrade,” his friend replies knowledgeably, “so there’s no child slavery.” They move on — slavery-free chocolate is, after all, just one of the unique selling points on offer in Cologne. And, viewed in that context, maybe having to pay a bit more for the Belgian chocolate sushi (a popular draw this year) or hand-sculpted chocolate shells is really a side issue.

“The industry still makes a lot of money,” Raymans says. “We need to get better at dividing the chocolate pie fairly, to farmers and everyone.”

At the other end of the hall, as the trade show starts to pack up, the statue of a small boy still wees tirelessly, his finest Belgian chocolate urine pearlescent in the exhibition lights.

Our families may not survive this

Thousands of jute sacks of cocoa beans are beginning to rot in the port of Abidjan in Ivory Coast. The world’s biggest supplier of raw chocolate has fallen victim to the determination of Laurent Gbagbo to cling to the presidency that the world says he lost in an election last November.

An export ban and an attempt by Gbagbo this week to commandeer the national export industry has crippled trade and cast thousands of producers, mainly small family farms, into uncertainty. The squeeze has left 475,000 tonnes — more than a third of annual output — of unexported cocoa beans sitting at Ivorian docks.

“The farmers are in disarray. Everything has stopped, the beans are just piling up in the bush,” says Marcel Aka, who farms near Daloa, which produces about a quarter of Ivory Coast’s cocoa. “Our families won’t survive this very long.”

World cocoa prices this week touched a 32-year high of $3,714 a tonne after Gbagbo, the incumbent president, decreed that the state would become the sole purchaser of cocoa in the world’s top grower and handle its export. Gbagbo desperately needs the money because sanctions have choked his funds and the treasury has run out of money to pay his soldiers and civil servants.

The multinationals who export most of the 1.3 million tonnes of Ivory Coast production have largely obeyed a call in December by Alessine Ouattara, the officially recognised victor of the presidential election, to boycott the product, which accounts for more than 40 per cent of the world supply.

It is not clear how Gbagbo could get the beans to world markets. EU ships are banned from Ivorian ports and most major suppliers have suspended Ivorian exports. If the embargo continues much longer, Europe and the United States, the world’s two biggest chocolate markets, may have to start looking for a substitute.
Charles Bremner