UAE chocolate manufacturers are under pressure because the wholesale price of cocoa has shot up to a 24-year high – but they are not allowed to increase their prices due to government restrictions.
At a time when most commodity prices have fallen by half – the cost of cocoa, which is priced in sterling has risen above £2,000 (Dh10,670) per tonne, the highest level since 1985. The profit margins of local manufacturers are being squeezed as a result. The UAE Government has told all food producers and traders to reduce the price of foods including rice, sugar, milk powder and sweets.
The steep cocoa price rise followed a crop disease and political instability in Ivory Cost, the largest cocoa producer and exporter. Ivory Coast and Ghana together account for 56 per cent of global production. European currency fluctuations have also affected the price in the global market.
"The cocoa price in the international market has touched £2,000 per tonne, the highest level since the 1980s," Ravi Jangid, Director of La Ronda Emirates, a chocolate manufacturer belonging to Emirates Holdings. "We use around 3,000 tonnes of chocolate every year to make various types of sweets and chocolates. Cocoa is produced mainly in West African countries such as Ivory Coast and Ghana.
"Production in Ivory Coast has been affected by a plant disease and the current political instability there. Some of the global commodity funds have entered the market, causing hoarding and shortages of cocoa in the global market."
Chocolate is a mixture of cocoa paste, cocoa butter and sugar, and cocoa powder and paste are widely used in the food industry.
Mohammed Haneef, Managing Director of Chocolate Island, an importer of luxury chocolate products, said: "Cocoa prices have gone up substantially but our products are luxury items which are not affected by such price fluctuations.
"Since we deal with premium chocolates the profit margins are high and we can absorb such price changes. Another major factor affecting the price of imported chocolates has been the appreciation of European currencies against dollar."
He said the impact of the rise would be felt mainly at the lower end of the mass market. Other chocolate dealers said overall sales in the UAE had slowed because chocolate was a luxury product dependent on the tourist market. Because of the economic crisis consumption was shifting from luxury products to cheaper alternatives.
Cocoa prices last week touched £2,005, the highest level since April 1985. Prices rose by 75 per cent in 2008. Cocoa bean arrivals at Ivory Coast ports are running 30 per cent below the levels at the last harvest season.