All you chocolate fans out there, get ready! Well at least the big food companies know what’s coming Nestle, Mondelez International and Hershey’s are preparing to increase prices as cocoa and coffee prices soar. Prices are skyrocketing as manufacturers handle a stunning array of supply chain stresses. They deal with challenges including crop disease and retaliatory tariffs placed on their products by the U.S. gov’t.
Nestle’s new CEO, Laurent Freixe, pointed to the unprecedented inflationary costs they experienced during the last twelve months. This increase has hit their coffee and cocoa value chains especially hard. The Fortune 500 company anticipates ongoing inflationary headwinds as it deals with an economic landscape that has pushed expenses upward.
Crop Challenges and Market Dynamics
The cocoa market is currently in crisis. Widespread adverse growing conditions in producers’ areas and crop disease continue to weigh heavily on production in our major producing states. As noted by Ms. Manz of Nestle, the three largest cocoa producing countries in the world are anticipating a 20% increase in supply this season. This increase would provide significant, long overdue relief. The story for the whole period was one of increasing prices.
“Prices started rising in early 2024 and have been at historically high levels ever since,” Ms. Manz stated, illustrating the ongoing difficulties faced by producers. With agriculture heavily reliant on a very limited geographic area in north-west Africa for agricultural productivity, external shocks like changing climatic patterns have only worsened the crises.
Mondelez International’s CFO Luca Zaramella was very optimistic that the cocoa market is on the verge of a considerable structural change. He remarked, “If cocoa comes down, I think quite frankly it is nirvana for us.” This speaks to how much of an impact rising cocoa prices have on overall production costs and profit margins for chocolate makers.
Tariffs and Cost Inflation
The U.S. tariff policy on cocoa imports further complicates the picture. Tariffs are anywhere from 10% to 47%, depending on the cocoa category. In his letter, Mondelez CEO Dirk Van de Put pointed to the crux of the matter. He noted that a big chunk of the cost inflation hitting his company is coming from cocoa prices and Canadian retaliatory tariffs.
“The current U.S. levy on cocoa is an exposure that we must manage on top of the cocoa market’s unprecedented recent price swings,” said Michele Buck, CEO of Hershey’s. First, tariffs increase the cost of production for food manufacturers. In doing so, they drive up consumer prices as well, making for a hostile market environment.
Businesses are preparing for tremendous negative impacts to their bottom lines as a result of the tariffs themselves as well as increased input costs. According to finance expert Steve Voskuil, “The unmitigated impact could be up to $US100 million per quarter for Q3 and Q4.” These numbers highlight the dire imperative for businesses to come to terms with cost containment tactics.
Consumer Sentiment and Company Responses
At the same time that food companies are preparing to raise prices, they’re facing a dramatic change in consumer sentiment. In fact, recent signals indicate that U.S. consumer confidence has eroded during the first quarter of the year. This drop is primarily due to increasing concerns about escalating expenses and tariffs.
“I think what’s going on is that the consumer feels very uncertain about the future,” Van de Put explained. He noted that consumers today are more intent on purchasing necessities such as meat and produce. They are moving down the line of discretionary items, buying fewer snacks and sweets.
Against this difficult backdrop, companies like Hershey’s and Mondelez are stepping in with new, exciting products to win over consumers. They’re increasing their product line to offer larger pack sizes. This creates new options for consumers across an expanded price spectrum. Van de Put added, “It means that we will offer a whole range of pack sizes to the consumer.”
