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What trends offer opportunities or pose threats in the European cocoa market?

Takes about 17 minutes to read

The popularity of specialty chocolate is growing in Europe. Demand for high-quality fine flavour cocoa and single-origin and single-estate chocolates is getting stronger. Multinationals increasingly find ways to grow their influence in this specialty market. At the same time, sustainability is becoming more important in the European chocolate market, affecting both specialty and bulk cocoa. As such, sustainability programmes have become commonplace among cocoa trading companies. European consumers want to know more about the context of cocoa production and the impact of their purchases.


1 . A growing focus on origin of cocoa and chocolate

The market for specialty cocoa is growing in Europe, as highlighted in our study on statistics and outlook in the European cocoa market. As customers seek higher-quality chocolate products, they are also increasingly interested in their origins. Single-origin chocolate is becoming more popular, attracting strong sales and high product satisfaction among consumers. This tendency is not expected to slow down any time soon, as European consumers have been increasingly looking for premium products, paying attention to the agro-climatic features of production areas, and the story of producers and their communities.

The growing importance of origin and quality is also seen in cocoa competitions, such as the International Cocoa Awards (ICA) of the Cocoa of Excellence (CoEx) and the Origin Chocolate Event, which reward flavour, quality and diversity of different origins.

Tips:

  • Develop and express your unique selling points as a supplier of cocoa beans. Think about factors which set you apart from your competitors to create your marketing story around these factors. For example, they can be related to the origin of your cocoa beans, the agroclimatic characteristics of the producing region, the culture of the producing communities, the unique quality of your product, your post-harvest techniques or a combination of these aspects. Xoco Gourmet is an example of a company already doing this successfully.
  • Know and maintain the genetics of your cocoa trees, which distinguish your unique flavour profile. Link up with existing research projects in your region related to cocoa germplasm mapping and biodiversity conservation, such as the International Centre for Tropical Agriculture (CIAT) in Colombia.
  • Investigate whether you qualify for industry awards, such as the International Cocoa Awards of the Cocoa of Excellence. This can be an interesting way to profile yourself in the European market for fine flavour cocoa.

2 . Demand for bean-to-bar chocolate on the rise

The focus on origin has also spurred a steep increase in the number of European bean-to-bar makers in recent years. Bean to bar means that the maker controls every step of the production process, from buying the cocoa beans to the creation of the chocolate bar. There are many examples of European companies making bean-to-bar and single-origin chocolate products, often using fine flavour cocoa beans. You can find them on this list of bean-to-bar producers worldwide.

For cocoa producers, the bean-to-bar concept involves different methods of production, packaging and direct shipping or sales to high-end outlets. Bean-to-bar enables a small number of producers to add significant amounts of value to their cocoa production. This value addition for cocoa producers is mainly done through quality branding and packaging, and by offering superior cocoa qualities.

Tips:

3 . Direct trade is shortening the cocoa chain

There is a growing number of direct trade relationships in the specialty cocoa market. These relationships are between producers and small and medium-sized chocolate makers. The idea of direct trade is that it maintains long-term, honest and strong relationships between cocoa producers or producer cooperatives and chocolate makers. This requires good trust, commitment and clear communication. Eventually, these relationships can lead to optimisation of quality, transfer of know-how and better price prospects for you as a farmer or exporter.

The increase of direct trade relationships is linked to platforms and traders such as Direct Cacao and Cocoanect, which connect producers and chocolate makers. Examples of producers and cooperatives supplying buyers directly are El Ceibo, in Bolivia, and Grupo Conacado, in the Dominican Republic.

However, connecting directly to producers is not always feasible for chocolate makers. Dealing with logistics, contracts, customs documentation and cases of non-compliance can be very complicated for smaller buyers. As such, there is a growing trend of European importers trying to create better connections between chocolate makers and producers, and still act as service providers in the value chain.

It is important to note that more direct trading allows producers to also supply tailored, semi-finished cocoa products to chocolate makers. This subject is covered in our study about the European market for semi-finished cocoa products.

Tips:

4 . Health and wellness increasingly influence chocolate consumers

Demand for high-quality cocoa is stimulated by a growing consumer interest in healthy living. European consumers are increasingly concerned about the impact of food on their health and wellness. Cocoa contains flavonoids, which are associated with health benefits such as lower blood pressure, improved blood vessel health and improvement in cholesterol levels. Health benefits are highest for dark chocolate due to its higher percentage of cocoa. Good quality cocoa means that less sugar is needed.

This focus on dark chocolate due to its high flavonoid content is not new. However, chocolate brands are currently adding extra flavonoids to their bars to optimise their health qualities. One example is the development of FlavaBars by Barry Callebaut and FlavaNaturals. Consumption of cocoa nibs as a food supplement is also growing, which can also be attributed to its associated health benefits.

The chocolate industry is increasingly adding natural ingredients to their chocolate products. Real fruit, vegetables or nuts are added to cocoa products as these are perceived as healthy by the consumer. There is also a growing demand for sugar-free chocolate bars, or chocolates with alternative sweeteners like stevia and coconut sugar.

Vegan chocolates are also growing in popularity, because of dairy allergies, lactose intolerance or consumers who are opting to live a vegan lifestyle. Barry Callebaut, for example, expanded their dairy-free chocolate product portfolio in May 2018. There is also an increasing demand for protein-fortified chocolates.

Tips:

  • Improve the quality of your cocoa beans to cater for the specialty segment. Refer to industry guidelines such as the Cocoa Beans: A Guide to Chocolate & Cocoa Industry Quality Requirements to learn more about the factors determining the quality of cocoa beans and how to address them. Reaching highquality cocoa beans requires harvesting the right beans at the right time, dedicated fermenting and drying, good storage and appropriate transportation.
  • To learn more about why chocolate is perceived as a healthy food, read this article by Vox.

5 . EU regulation on cadmium in effect

The European Union has strengthened its regulation on cadmium in chocolate and derived products. Intake of high levels of cadmium is primarily toxic to the kidney. The new cadmium regulation became effective as of January 2019. Cadmium is found naturally in the soil, but pesticides and chemical fertilisers containing cadmium are also sources of contamination. The maximum permitted levels of cadmium relate to finished chocolate products, but controls of cocoa beans have become important as well.

The presence of cadmium is a particular problem for cocoa from some Latin American countries, which suffer from high soil contamination from volcanic activity, forest fires and other factors. European chocolate makers test cocoa from Latin America and other origins for cadmium. Currently, chocolate makers will normally replace cocoa with high cadmium content with origins that report lower cadmium levels. There is a risk that controls on cadmium contamination will lead to a shortage in high-quality and certified beans, since Latin America is the main producer within those segments.

Producing countries warn of adverse impacts on livelihoods of smallholder cocoa farmers. Several producing countries therefore lobbied the European Union via the World Trade Organisation to delay or prevent the enforcement of the cadmium legislation. As a reaction, the International Cocoa Organization (ICCO) started a project in 2019 to develop a regional strategy for handling cadmium contamination in cocoa beans in Colombia, Ecuador, Peru and Trinidad and Tobago. This project is sponsored by the European Union.

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6 . Multinationals increase their influence on the global cocoa market

Multinationals are expanding their influence along the cocoa supply chain in mainstream and bulk markets. Many of these multinationals have their own buyers and processing facilities in cocoa-producing countries. For example, chocolate companies Mondelez and Barry Callebaut, as well as ingredient companies such as Cargill and OLAM, work as both an exporter in the country of origin and as an importer and manufacturer in Europe.

The ongoing concentration and vertical integration of the cocoa supply chain makes it increasingly difficult for small and medium-sized players to enter the market. On the supply side, there is also a growing concern on the availability of cocoa beans, which are absorbed by large companies operating in producing countries. While trading on the futures market is becoming more challenging, margins in the physical trading may remain attractive and may offer opportunities for smaller trading companies.

The European chocolate market also sees the increasing involvement of mainstream chocolate companies in the speciality segment. Chocolate giants increasingly adopt terms from the speciality market such as bean-to-bar and single origin. Another strategy is the acquisition of chocolate makers in the specialty segment, which for instance explains the acquisition of Smet by Cargill.

In recent years, there has also been a growing imbalance of bargaining power between retailers and food manufacturers. Retailers hold a powerful position in the cocoa value chain as they have the power to cut off margins, put pressure on prices and have the authority to decide what they sell. This allows retailers to set the terms under which they purchase cocoa beans. When retailers only purchase large quantities of cocoa beans at low prices from food manufacturers, these manufacturers will in turn also lower the price they pay farmers. In addition, supermarkets take on increasing shares of the chocolate market because they are diversifying their private-label range to appeal to various consumer groups, for example, Delicata of Ahold, in the Netherlands and Origine du Goût of E.Leclerc, in France).

Tips:

  • Stay away from the mainstream market if you have highquality products. Our study on finding buyers in the European cocoa market gives you a few ideas on where to search and how to establish direct contact with buyers operating in the highquality, fine flavour cocoa segment.
  • See our study on buyer requirements for cocoa to learn about which European market standards and requirements you need to comply with when supplying to multinationals in Europe.
  • See our study on how to do business with European buyers for more information about compliance with buyer requirements, how to send samples and how to draw up contracts.

7 . Cocoa sustainability high on the international agenda

Sustainability in the cocoa sector remains critical worldwide, impacting policy makers in recent years.

Poverty reduction is a very important and urgent topic. Due to severe price drops in 2018, the earnings of cocoa producers decreased by about 30% on average. In this scenario, child labour becomes a higher risk, as more and more children drop out of school to work on the family farm. Child labour is also a returning agenda item, since improvements are hardly visible and the levels remain very high in the cocoa sector, with an estimated 2.1 million children working in cocoa fields in Ivory Coast and Ghana alone.

There is also great concern around climate change and unsustainable farming practices. Research has shown that the area suitable for cocoa production will decrease significantly in the near future due to climate change. Cocoa farming is also a main driver of deforestation in some producing countries like Ivory Coast, which contributes to climate change. Direct effects of climate change such as less rain, longer dry seasons and the increase in pests and diseases can negatively affect cocoa quality and yields. To tackle these challenges, it is increasingly important for farmers to adapt to more sustainable farming practices, such as using fewer synthetic fertilisers and conducting good water management.

Reaching a sustainable cocoa sector is a responsibility of all. In April 2018, the 4th World Cocoa Conference that took place in Berlin released the Berlin Declaration. This declaration recognised that a sustainable cocoa sector is a collective responsibility of all stakeholders within the sector, and that this goal should be achieved through collaboration.

An example of a current international initiative targeting the cocoa sector is Cocoa Action. This is a sustainability strategy platform for large chocolate and cocoa companies to align projects and goals. Another example is the Cocoa and Forests Initiative. This is a platform between industry, donors and the governments of Ghana and Ivory Coast against deforestation. In addition, the first international standard for sustainable and traceable cocoa was published in May 2019. This standard was developed by stakeholders from all levels of the cocoa industry.

In 2018, the Cocoa Barometer concluded that these programmes and initiatives have not yet led to significant impact when it comes to farmers' livelihoods or environmental impact. However, sustainability issues are pressing both for producers and buyers, and will remain high on the international agenda. The private sector is also engaging more closely with sustainability activities, as elaborated in the next section.

    Tips:

    • Check the website of the World Cocoa Foundation to stay up to date on the main sustainability issues affecting the sector, as well as the main initiatives targeting those issues.
    • Consider developing and implementing your own corporate social responsibility (CSR) policy or code of conduct. This is not always required by buyers, but may be a good way to show potential buyers your views on social and environmental responsibility. This may furthermore help you to stand out when your buyer has to choose between several suppliers. Some good practices are Nahua (Costa Rica), CABRUCA (Brazil) and Ingemann (Nicaragua).
    • Ensure that the cocoa producers you source from have sustainable practices in place. Many social and environmental issues take place at farm level, which may not be a part of direct handling and processing activities. Examples of training materials you can use are Cocoannect's training material and World Cocoa Foundation's Climate-Smart Agriculture Training Manual.
    • As a cocoa producer, apply crop diversification strategies, which are used as a long-term climate change mitigation and adaptation strategy.

    8 . Sustainability programmes become commonplace in the private sector

    Consumer awareness about sustainable cocoa production has grown in the last decade. This has resulted in an increased demand for sustainably produced cocoa and chocolate, especially in northern and western Europe. Both the media and public awareness campaigns such as those targeting child labour and human trafficking have fuelled this trend.

    Most importers, cocoa processors, chocolate makers and retailers have designed their own sustainability commitments over the years. Each company follows its own strategy in defining sustainability. Some use the certification schemes of the leading standard bodies (Rainforest Alliance-UTZ, Fairtrade, organic), some work through their own projects, while others combine both approaches. Depending on the buyer and their enforcement actions, producers will need to comply or commit to comply with the required standards.

    Some examples of corporate sustainability programmes include:

    Retailers cover their sustainability concerns and requirements in their codes of conduct. Look up on the websites of REWE (Germany), Ahold Delhaize (Netherlands) and Carrefour (France) for examples. Many European retailers also actively promote certified cocoa and increasingly source certified cocoa for their own private-label brands. For instance, Coop (Switzerland) requires all chocolate products to be certified with Fairtrade standard Max Havelaar. Another example is British supermarket Waitrose, which has committed to only sourcing Fairtrade cocoa for its private-label products by the end of 2019. In 2017, 48% of total cocoa production was certified. Read more about the developments in certification in our statistics and outlook study.

    Some European countries have also set sustainability goals targeting their chocolate and confectionery industry. Companies increasingly adopt their practices to contribute to these targets, such as the endorsement of specific certification schemes or codes of conduct. Examples of countries that work on their own national platforms to achieve their sustainability targets are:

    In addition, governments' procurement policies in western Europe consistently focus on sustainability criteria for the purchase of products such as cocoa and chocolate. The Dutch government, for instance, has elaborated specific sustainable procurement guidelines which include cocoa. All Dutch public agencies have started to implement them, including imposing conditions in their public tenders.

    As these commitments and programmes show, companies and governments recognise the need to reach a more sustainable cocoa sector. The focus on and importance of sustainability for companies active in the cocoa sector will only increase and intensify, broadening the focus to issues such as biodiversity and living incomes.

    Tips:

    • Check the platform of Cocoa Connect for more information about the production, markets and policies for sustainable cocoa. On this website you can also share, meet and learn from other players in the cocoa sector.
    • Before engaging in any certification schemes, verify with your potential buyers whether a certification is required and whether it provides you with a competitive advantage over other suppliers to the European market. You could also discuss with your buyer if there are any possibilities of receiving assistance in obtaining your certifications.
    • Assess whether you will benefit from moving to sustainable production by using the Cocoa Farm Development Plan from the international standards for sustainable and traceable cocoa production.
    • See our study on buyer requirements for cocoa for further information on European requirements for sustainability certifications.
    • Investigate the existing sustainability standards established by retailers and other stakeholders in the European market by approaching cocoa importers, supermarket category managers for chocolate and sector specialists. Check whether you can adhere to the guidelines laid down by these standards. They can be a good starting point if you want to supply cocoa beans to these companies.
    • See the website of the European Commission to learn more about green and sustainable public procurement in the EU. Procurements policies provide guidelines which help to ensure that goods, such as cocoa beans, are purchased in a sustainable way from its suppliers.

    This study has been carried out on behalf of CBI by Profound.

    Please review our market information disclaimer.

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