SINGAPORE -- From its Malaysian factory in the state of Johor, Italian agro-food company Unigra makes ingredients from chocolate chips to cocoa powder used by confectioners for export across Asia to markets such as China, Taiwan and Thailand.
But operations in the past year have "surprised" Denis Cavrini, the manufacturer's International Commercial Director for regions like the Asia-Pacific. The executive told Nikkei Asia that costs of obtaining cocoa raw materials have surged threefold this year.
As a result, Cavrini estimated that overall, Unigra has had to double prices to its buyers of cocoa-based goods. The company sources the bulk of the raw material for chocolate used at its Malaysia factory from Indonesia.
"Today we have the increasing of consumption, and at the same time less and less production," Cavrini said, describing falling harvests of cocoa from its sources. "This is something unusual, because everyone knows that the consumption of chocolate was growing, but no one was able to produce."
According to market research agency Euromonitor, the market size of confectioneries like cakes, ice cream and chocolate in the Asia-Pacific region has shown a compounded annual growth rate of 3%, swelling from 19 million tonnes in 2012 to 24 million tonnes in 2022.
But Indonesia, Asia's largest producer of cocoa beans, has seen harvests of the raw material for chocolate halved from 2015 to 2023, according to financial markets data provider LSEG.
This year, Indonesian cocoa export prices have soared from around $3,400 per tonne at the start of January to about $6,500 near the end of September, LSEG's data showed, pressuring sweets makers who look to the country as a resource.
"Climate change is proving to be a rising issue, especially to the chocolate industry in Southeast Asia," Jon Trask, CEO of Dimitra, a provider of agricultural technology to cocoa cultivators, told Nikkei. "Extreme temperatures, erratic rainfall and the rise of drastic weather events are making it excessively difficult for farmers to cultivate cocoa."
In September, the Cocoa Association of Asia published a paper warning of "not enough Asian cocoa beans" to meet increasing demand -- making the region dependent on material from West Africa and Latin America, where some countries have also experienced less-than-ideal weather patterns that have affected harvests.
"The cocoa industry needs more Asian cocoa," CAA's paper said, noting how currently Asia grinds more than 1.1 million tonnes of cocoa beans, but that the regional cocoa crop is less than 0.3 million tonnes, forcing processors to import increasing volumes of cocoa beans from other regions.
"Prices will increase, especially as Asian industry players have to pay higher transportation costs and compete with European and American buyers," Francisco Martin-Rayo, CEO at agritech platform Helios, told Nikkei. "Without more production, chocolate makers in Asia will continue to have difficulty accessing sufficient, and sufficiently high quality, cocoa beans."
Climate worries are putting the supply chain for chocolate makers at stake. Lucrezia Cogliati, a commodities analyst at research outfit BMI, told Nikkei that environmental factors are expected to "exacerbate the current challenges faced by the cocoa sector," painting a bleak outlook for production and prices in the longer term.
"Cocoa trees are particularly sensitive to weather, requiring very specific conditions to grow," she told Nikkei. "Changes in weather patterns and the increasing incidence of extreme weather events are particularly problematic for the crop."
According to the Indonesian government, temperatures across the country have increased by an average of around 0.9 C over the past 30 years. Rising temperatures have led to changes in humidity, affecting the growth of the delicate cocoa beans, and an increase in floods and droughts has reduced the amount of land suitable for growing cocoa trees.
But climate change is not the only challenge. CAA's paper highlighted that in Indonesia, competing crops and aging plantations pose other hurdles -- growers are lured by alternative harvests for income, such as palm oil and rubber, while old cocoa trees decline in productivity.
These headwinds have kept chocolate makers on their toes, although some that Nikkei contacted were tight-lipped on a response to the cocoa crunch, with industry giants such as Nestle and Mondelez International declining to comment.
"Cocoa, while a key ingredient in some of our flagship products like Pocky, is still required in relatively modest quantities for us compared to others that are focused on chocolate making for example," Hideaki Nagahisa, chief operating officer for the Asia-Pacific at Japanese food processing company Glico, told Nikkei. "This offers us some flexibility in navigating potential supply shortages."
Elie Fouche, vice president for cocoa covering the Asia-Pacific at Swiss-Belgian chocolate maker Barry Callebaut, told Nikkei that his company is collaborating with local stakeholders in Indonesia, including government agencies, to ensure long-term viability of cocoa farming.
"The industry can collectively address these challenges by enhancing collaboration on sustainable farming initiatives, promoting better agricultural practices," Fouche, who is also CAA's chairman, told Nikkei. "By sharing best practices and working together on innovation and technology adoption, we can contribute to stabilizing the supply chain."
Unigra's Cavrini told Nikkei he has seen producers respond by cutting cocoa content in their products or using substitutes to replace the need for cocoa.
This involves switching to fats sourced from palm kernel and shea butter to replace cocoa butter's role in making chocolate -- in effect tweaking recipes for existing products. "More or less they have the same characteristic of the cocoa butter," the executive said.
Cocoa butter -- an edible fat extracted from cocoa beans typically used in chocolates, has also become more expensive, industry players note. Suppliers of confectionery ingredients are pushing to introduce products that are viable substitutes.
French chocolate manufacturer Valrhona has made a new product line of chocolates for confectioners it plans to sell in Asia that has no cocoa butter added, relying just on beans and sugar as basic ingredients.
"We can also adjust our formula with less quantity of cocoa butter," Wenceslas Wedrychowski, Valrhona's Asia-Pacific general manager, told Nikkei. "We can also diversify, and some customers will look for other options."
Another French brand, Prova Gourmet, launched in Singapore in October a cocoa-flavored liquid that it claims can help confectioners reduce the use of cocoa powder by 30%. According to the company, the product is made from "natural ingredients" with "nothing from raw cocoa beans."
"You have almost a 15 to 20% saving cost on the cocoa part," Arnaud Monmarche, a director at Prova, told Nikkei. "We believe that in the near future we will have to find more and more alternatives not dependent on cocoa."
