What the Chocolate Industry Needs is A $100 Bar of Chocolate
Posted in:
Opinion
Thomas:
The commodities market price for (robusta) coffee right now is about $1.05/lb, or about $2350/MT. The price for commodity cocoa is about $2470, for comparison purposes.
These markets are called the "formal markets," which means the transactions are recorded and the prices are known. Thus it's possible for a buyer to pick up a phone to a seller and purchase cocoa according to standard terms and conditions, and according to established grading standards using standardized contract terms.
Coffee and cocoa are also traded on what is called the "informal market," where transactions are not recorded and each sale is negotiated on a personal basis. One kind of informal market is Direct Trade, where the buyer buys directly from the grower. Prices are negotiated in private and may vary from contract to contract which may embody non-standard (with respect to industry norms) terms and conditions.
There are informal markets in coffee that are very public, and the best known of these are the ones associated with the Cup of Excellence Awards. While commodity coffee hovers between US$1 - $2/lb, prices paid for select lots at CoE auctions routinely fetch US$20+/lb. One lot of Guatemalan coffee fetched $80.20 - per pound - in 2008. You do have to calculate in the auctioneer's fees (typically 15%), but the prices paid at the CoE auctions are the gross amount paid to the farmer. A normal 60kg bag of robusta would fetch $138 on the commodity market. The farmer is probably only getting 70% of that. On the other hand, in the CoE, that 60kg bag would fetch over $5000 at $50/lb even after auction fees are deducted. If a farmer has seven bags of coffee that fetches even $20/lb, they are doing very well indeed.
But even those prices are nowhere near the upper limit on coffee prices: there are exotic coffees that retail for as much as $1300/lb, according to the article on Kopi Luwak coffee on Wikipedia.
I spoke with Stephane Bonnat in 2010 when I was last at the Salon du Chocolat, and he said he was paying farmers 6000/mt for some of his beans. That's about US$3.50/lb at today's exchange rate. If I recall correctly, there are cocoa beans that command higher prices, still. Earlier, I reported that the Mast Bros had indicated that they'd paid as much as US$20,000/ton ($10/lb) for beans. (It was not clear what this price referred to - the farm gate price or the delivered price, though the likelihood is that it was the delivered price and the farmers received considerably less.)
At $20,000/ton delivered, the cost of the cocoa in a 100gr, 80% bar is about $2.20. Assume manufacturing doubles that cost in one-ton quantities. Throw in $1/unit for packaging and you have a cost of goods (very naively) of about $5.40. A retail price of $30 for such a bar is not an unreasonable lower bound, assuming the bar is made to be eaten right away, and accounting for a three-tier (broker (15%), distributor (20%), retailer (100%)) distribution system where the chocolate maker enjoys a 50% gross margin.
Doubling the delivered price of cocoa (to $40,000/ton with the farmer getting at least 75% of that), doubling the cost of packaging to $2/unit, allowing $40k/ton for manufacturing, aging, and other processing , and setting the gross margin to the chocolate maker at 70% gets the retail price of the bar around the $100 price point - and there is now over $35 per bar available for marketing and other activities on a 100gr bar that costs over $10 each to manufacture. In other words, there's a lot of money in the system to pay for experts whose job it is to educate people about the merits of this $100 bar.
It would require a substantial change in mindset for this to happen, but if it did happen, the entire chocolate industry would benefit tremendously.
Still the questions remain, what are more of the characteristics that define this $100 bar? There have been some good suggestions already but I am sure we can come up with more.