Chocolate Prices to Rise

Cadbury’s the manufacturer of Dairy Milk, have warned that the price of chocolate is expected to rise next year by 5-6%. The main reason for this is an increase in the cost of raw materials such as cocoa, milk and oil.

Cocoa is one of the world’s largest traded commodity. It’s rise in price has mirrored many other commodities that have also seen rises in price. The reason for the rising price of cocoa is due to:

• Lower than expected supply from countries such as Ghana.
• Growing Demand, including demand from emerging economies such as China.
• Strong demand from domestic markets like the UK and US.

Yesterday, also came news that factory gate inflation had rise to 4.5% (link) This is the highest rate of factory inflation since 1991. This makes the prospect of future interest rate cuts less likely.

Both Nestle (maker of Kit Kat) and Cadbury’s (relaunching Wispa) have reported strong growth recently. Suggesting that rising prices may do little to effect demand. (Demand for chocolate is traditionally very price inelastic)

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