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Specialty cocoa beans: a market to watch carefully.

SPECIALTY COCOA BEANS: A MARKET TO WATCH CAREFULLY

World trade in specialty cocoa beans classified as "fine" or "flavor" beans has remained fairly static in recent years, with demand at a relatively low level, according to a forthcoming ITC study. Fine or flavor cocoa beans represent roughly 5% of the volume of total cocoa bean exports, reaching around 70,000 tons annually. The lack of growth in the market is in part a reflection of the concern of chocolate manufacturers to have an assured, consistent supply over the long term. Another factor affecting the market situation is shifting consumer demand from solid chocolate bars to those containing non-cocoa ingredients such as nuts, creams and fruit. These ingredients have flavors that overpower the subtle aroma of fine or flavor cocoa beans and make their use unnecessary. Still another factor influencing the market is the depressed prices for cocoa in general, which affects the competitive position of fine or flavor cocoa because this cocoa requires the added expense of special post-harvest handling. While these specialty cocoa beans represent an important, and perhaps critical, ingredient in the top line of chocolate confectionery products, the overall quantity used in that sector is quite small. The cultivation of these cocoa beans is therefore not currently a growth industry.

Despite the small and static nature of the market, exporters of fine or flavor cocoa should be able to continue sales to the sectors of the chocolate industry that use these beans in their products. An understanding of the operations of this trade is essential for marketing this bean successfully.

Types of beans

Specialists in the cocoa trade generally classify cocoa beans into two broad categories: those used for manufacturing cocoa butter and high-volume chocolate lines, and those that provide specific flavors to fine chocolates and chocolate coatings or "couvertures" (these categories are used by traders and processors and do not represent a technical or scientific classification). Beans of the first group are usually referred to as "basic" beans in the United States and "ordinary" or "bulk" beans in Europe. The second category is termed "fine" in Europe and "flavor" in the United States.

No universally accepted criteria exist for the two categories. Instead, individual users decide which beans fit into each group, based on their own quality requirements. The basis for determining the cocoa type may therefore vary significantly among chocolate manufacturers.

From a botanical point of view, cocoa is usually classified into four broad categories, namely "forastero," "criollo," "trinitario" and "nacional." Forastero beans account for a large part of the cocoa beans produced, while the other three are grown in smaller quantities. Forastero is considered an ordinary cocoa, while the latter three are fine or flavor cocoa beans:

* Criollo cocoa is usually a medium to large bean (90 to 80 beans per 100 grams) with a dark ivory to light brown shell when processed. It has a somewhat sweet cocoa flavor, often accompanied by a unique, delicate aroma. Supplying areas include Mexico, Venezuela, Sri Lanka, Samoa and Indonesia (from Java).

* Trinitario cocoa is a cross between forastero and criollo. It is produced in Trinidad and Tobago, Jamaica, Grenada, Costa Rica, Colombia, Panama and Papua New Guinea. The bean is medium to large in size (90 to 65 beans per 100 grams) with a medium brown shell.

* Nacional is the term for cocoa grown in the tropical rain forest west of the Andes, in Colombia and Ecuador. The bean is relatively large (90 to 85 beans per 100 grams), with a light brown shell. It has a unique pungent, but pleasant, aroma known as the "Arriba" flavor. Because of the declining yield and age of many of the nacional tree stands, however, a number of the trees in the main producing areas are now being cut down. Some of the beans harvested from the trinitario hybrids introduced to replace these trees have picked up part of the "Arriba" flavor (the reason may be cross-fertilization, or soil and climatic conditions).

Main suppliers

The following countries and areas export only fine or flavor cocoa beans (according to criteria adopted for the ITC study, based on interviews with the trade): Belize, Dominica, Grenada, Jamaica, Saint Lucia, Saint Vincent and the Grenadines, Sri Lanka, Trinidad and Tobago, Venezuela and Samoa. Those whose exports are partially fine or flavor cocoa beans are Ecuador (75% of its exports are this type of cocoa), Costa Rica (50%), Papua New Guinea (30%), Colombia (25%), Mexico (25%) and Indonesia (10%).

Some of the large chocolate-processing firms in the major markets obtain their supplies of fine or flavor cocoa beans from one or two specific supplying countries. For example, Jamaican and Grenadian cocoa is used mainly by only two firms, and Trinidadian cocoa by one. Smaller chocolate processors in the markets, on the other hand, purchase in more limited quantities from numerous supplying areas.

Ingredient in blends

Fine or flavor cocoa beans are used in blends with ordinary cocoa beans to produce specific flavors in the finished product. Although some of the expensive lines of chocolate are made exclusively of fine or flavor cocoa, those cases are exceptions. Blending is the usual situation, based on the desire to lower the cost of the cocoa element in the formula.

Fine or flavor cocoa beans are generally combined with a milder type of ordinary cocoa bean, such as, for example, that produced in Ghana, Nigeria or Togo, to arrive at the special flavors. Beans originating from certain producing areas have flavors that are too strong to allow the delicate aroma of the fine or flavor cocoa to come out in a blend of this type. Fine or flavor beans from Ecuador, however, are a special case, as their pungent "Arriba" flavor is strong enough to dominate beans from other locations. They can thus be combined with most types of ordinary beans.

Fine or flavor cocoa beans are used in blends to manufacture dark or plain specialty chocolates and coatings, rather than milk chocolates. In milk chocolates, the milk contributes the overriding flavor, and the addition of fine or flavor cocoa would not noticeably change the taste.

Principal sectors

Fine or flavor cocoa beans are primarily used by chocolate manufacturers that produce highly specific intermediary products, such as coatings for the top-of-the-line confectionery industry, or that sell a well defined quality semi-sweet (dark) or "plain" chocolate product direct to consumers. They are also used by small chocolate manufacturers that prefer, regardless of cost, to process cocoa beans under cottage industry conditions into top-grade chocolate for sale to a select clientele. Most of the large manufacturers of popular, widely distributed consumer chocolate goods have practically discontinued using fine or flavor cocoa beans in their formulae, and they do not include these beans in the development of new products.

Small-scale chocolate confectionery manufacturers are increasingly purchasing their chocolate requirements and other intermediate products from industrial supply houses, rather than undertaking the processing themselves. This has reduced the number of marketing outlets for fine or flavor cocoa beans. Generally speaking, firms that discontinue their in-house bean-processing operations insist that the chocolate products they buy from supply houses be made with their own special formulations. The overall demand for fine or flavor cocoa beans is not therefore affected by this change in the short term.

In the long term, however, the picture may be different. For chocolate processors that serve as industrial supply houses, the efficient use of machinery is of great importance. Frequent changes in formulations are uneconomical for their processing operations. It may be only a matter of time until the customers of these large concerns are required to accept the standard formulations. The erratic supply of fine or flavor cocoa beans in the past could discourage such firms from keeping this specialty cocoa in their mixtures.

Main markets

World exports of fine or flavor beans came to over 69,000 tons in 1989, representing 4.7% of total cocoa exports that year. The leading markets in descending order of import volume are the United States, Germany, Japan, Switzerland, France and the United Kingdom.

United States: In 1989 the United States imported approximately 38,000 tons of fine or flavor cocoa beans, representing around 14% of the country's total cocoa imports (of about 266,000 tons). A large part of these imports was of lower grades of fine or flavor cocoa. The prime grades of these beans imported into the country in 1989 amounted to about 8,000 tons, or 3% of total imports of all types of cocoa.

A major portion of the fine or flavor bean imports in 1989 came from Ecuador, which sold around 32,100 tons to U.S. buyers that year. Trinidad and Tobago accounted for about 810 tons of these cocoa imports in 1989, various islands in the eastern Caribbean region for nearly 430 tons and Samoa about 340 tons. More than half of the imports from Trinidad and Tobago are purchased by one manufacturer direct from the producers.

Germany: Fine or flavor cocoa beans represent from 3% to 4% of total cocoa imports (based on past figures for the western portion of the country) and have shown a slight decline in recent years. Imports of these beans in 1989 came to 8,100 tons. In general terms the German market for fine or flavor cocoa beans is relatively small. In 1989 the main source of this type of cocoa was Ecuador, which supplied about 3,400 tons. Other sources, accounting for much smaller quantities, are Samoa and Grenada.

Japan: The Japanese market for fine or flavor cocoa beans has considerable potential, despite the fact that no long-standing tradition exists in the country for eating chocolate. In 1989 the country's imports of these products totalled around 5,300 tons, equivalent to 12% of cocoa bean imports of all types. Japan pays a premium for the fine or flavor cocoa bean segment of its imports. The main supplying countries in 1989 were Ecuador, with around 3,100 tons; Venezuela, about 1,500 tons: Jamaica, over 250 tons; Grenada, nearly 220 tons; and Trinidad and Tobago, approximately 180 tons. Chocolate processors in Japan prefer to purchase their imported raw material requirements from large trading houses than to buy direct from exporters.

Switzerland: The Swiss market has the highest per capita consumption of chocolate in the world (approximately 10.0 kg per year, compared with 8.0 kg in the United Kingdom, 6.7 kg in Germany, 4.6 kg in the United States, 4.2 kg in France and 1.4 kg in Japan). In the past Swiss chocolate manufacturers incorporated a high percentage of fine or flavor cocoa in their formulations, even in their popular consumer blends, but the extent of usage is declining. These beans are used by both large, well known firms and smaller companies. At least one major chocolate firm has decided to phase out this specialty bean in its blends. Another large Swiss chocolate firm, on the other hand, is expanding its use of this type of chocolate. Imports of fine and flavor cocoa in 1989 came to almost 1,770 tons, or 8% of the total imports of cocoa beans.

France: The French market for fine or flavor cocoa is relatively small. Total annual imports of fine or flavor beans represent about 4% of the total cocoa imports into the country. The premium paid for fine or flavor beans is only slightly over the price of ordinary cocoa beans. The cocoa industry tends to be more decentralized than in other European countries.

United Kingdom: Imports of fine or flavor cocoa beans amounted to about 2,600 tons in 1989, equivalent to 2.4% of total cocoa bean imports. In contrast to the situation in other European markets, the buyers of fine or flavor cocoa beans in the United Kingdom are mainly large processors. Smaller U.K. chocolate manufacturers are generally no longer interested in this type of cocoa. Jamaica is the largest single supplier of these beans to the United Kingdom.

Prices

World market prices for fine or flavor cocoa beans follow overall world cocoa market prices in the magnitude of their fluctuations. The premiums paid usually tend to be very small, and in some countries these beans are even sold below the price of ordinary cocoa beans. Only very small and well prepared quantities of less than, for example, lots of ten tons may fetch extraordinarily high premiums of 200% to 300% above the price for ordinary cocoa beans. (Such prices were reported to have been paid by cocoa buyers in the past during periods of low cocoa prices.)

High premiums are essentially a function of the relative scarcity of the product when it is needed in the spot market in the consuming countries. Even a slight increase in the availability of a very highly priced bean will cause the premium to fall rapidly.

More modest, but also more consistent, premiums for fine or flavor cocoa beans can be achieved through the same methods of post-harvest processing that have been used successfully to raise the prices of ordinary cocoa beans.

Marketing factors

In the marketing of cocoa beans, the two most important factors in achieving buyer satisfaction are consistency in the quality of the product and the assurance of a steady supply. Fine or flavor cocoa beans will achieve their "niche" position and fetch an appropriate premium in the cocoa market only if they continue to be produced in small but steady quantities of distinctly and individually different but consistent flavor and colour characteristics. They are used by a small number of processors who are more demanding in the quality of their raw materials in terms of consistency in colour, flavor and bean size than buyers of ordinary cocoa beans.

Users of fine or flavor cocoa beans express concern about the reliability of future supply in terms of both quantity and quality. It is therefore essential to convince them of the continuity of supply so that they will incorporate that type of cocoa in their formulations.

Prospects

The strongest potential for increased use of fine or flavor cocoa beans is in the dark, plain, semi-sweet and "vanilla" types of high-quality chocolate products. The market is expected to expand moderately, particularly in the top-grade segment of the popular consumer chocolate market, where current blends of fine and ordinary cocoa beans could include a greater proportion of fine or flavor beans. Consistency of supply and quality of beans would, however, be required, because of modern processing technology, as discussed above. Given the current small supply of fine or flavor cocoa beans on the world market, little danger exists that a significant increase in production of that type of bean would upset the overall cocoa market structure.

PHOTO : These cocoa beans are used in blends with ordinary cocoa to produce chocolates with special flavors.
COPYRIGHT 1991 International Trade Centre UNCTAD/GATT
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Author:Byskov, Bertil; Scheu, Hans
Publication:International Trade Forum
Date:Jan 1, 1991
Words:2471
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