ADM, Cargill and Barry Callebaut: The Fight to Control Cocoa

Chocolate is a sticky business. That much has been demonstrated by the furore surrounding the potential sale of ADM’s cocoa business to fellow commodity giant Cargill, with value estimates as high as US$2 billion. Rumour has it that the two have entered the final stages of negotiation and if the deal were to prove successful, Cargill would control 35% of the world’s cocoa processing market, tipping Barry Callebaut and its 25% share off the top spot. Euromonitor International maps out the market that everyone in the world of chocolate is talking about.

Nearly half of all cocoa globally is consumed as chocolate confectionery, and Western Europe is the largest chocolate confectionery market by far, consuming 2.3 million tonnes in 2013, making it the beating heart of the world’s cocoa industry. Per capita consumption of chocolate varies significantly around the world, from 4.7kg per capita in Western Europe to 0.2kg per capita in Asia Pacific. This is reflected in the total usage of cocoa by product category, with dairy and ice cream applications significantly more important in developing regions.

Percentage Breakdown of Cocoa Ingredients Consumption by Product Category, 2012

Source: Euromonitor International

Back in Western Europe, retail value sales of chocolate confectionery fell by over US$500 million in the five years to 2013, and while volume consumption grew over that period, it was by less than 3%. In complete contrast, brands in North America successfully squeezed value from the category, with retail value rising by more than US$3.2 billion over 2008-2013 as volume consumption fell by nearly 250,000 tonnes. Looking ahead, growth in chocolate confectionery is predicted to be weak in both regions, particularly in North America, with just 4,000 tonnes more expected in 2017 compared to 2013.

But, while the well-established cocoa consuming markets continue to stall, demand in Asia Pacific is growing stronger - by 2017 it is expected that nearly 20% of all cocoa ingredients will be consumed in the region, compared to 15% a decade earlier. Latin America, Asia Pacific and the Middle East and Africa hold significant potential for long-term cocoa demand, given their current low per capita consumption of chocolate confectionery. For example, if per capita consumption of chocolate confectionery in Asia were to double from its low base of 200g to a highly possible 400g, cocoa demand in the region would increase by 30%.

Forecast Growth of Cocoa Ingredients Against Per Capita Consumption of Chocolate Confectionery by Region

Source: Euromonitor International

With the growth in cocoa consumption clearly coming from emerging markets, Barry Callebaut’s rationale behind its US$840 million acquisition of Singaporean-based Petra Foods earlier this year is clear, positioning it well to capitalise on growth in Asia Pacific, and in the process leapfrogging Cargill to make it the single largest cocoa supplier in the world.

It seems only natural that Cargill wants to re-establish itself as the market leader in the industry, and by acquiring ADM’s operations it would do so. However, their operations overlap significantly in Europe, Brazil and West Africa, meaning that to satisfy the European Commission there will almost certainly have to be divestment. ADM’s stronghold is in North America and looking at the markets alone, Cargill’s willingness to take it on seems a little counterintuitive knowing how little growth is expected to come from the region.