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Sourcing Insulates Some Chocolate Makers from Cost Increases

Although inflation has been slowing for many food products, the prices for some commodities, including cocoa, have been rising sharply.

In the past year, cocoa futures have risen more than 40 percent, and were currently listed at more than $3,400 per metric ton, compared with about $2,300 a year ago, according to Trading Economics. Heavy rainfall in parts of Africa, among other factors, are causing demand to outstrip supply for the second year in a row, according to reports, and the resulting price increases are having a big impact on mainstream chocolate and candy makers.

However, many specialty and artisan chocolatiers, such as Dandelion Chocolate in San Francisco, have been largely immune to the rising prices for commodity cocoa, thanks to their farmer-friendly sourcing strategies.

“Dandelion sources specialty cacao, which is decoupled from the commodity price,” said Greg D’alesandre, chief sourcing officer at Dandelion. “The prices we pay are set based on the quality of product rather than an industrywide price,” which he said protects the company from unexpected cost fluctuations.

“It also means the cocoa producers with whom we work aren’t gambling with their work hoping the price stays the same or goes up but concerned that it could go down,” he said.

Dandelion has been paying nearly $7,000 per metric ton for cocoa, D’alesandre said, which is more than double the recent commodity price. He noted that this commodity price, although it has been on the rise recently, has not changed substantially from what it was 50 years ago, and is below the high prices of the late 1970s.

“The cost of living has increased substantially in the last 50 years, but the price of cacao has not,” he said. “This has been a huge challenge for cocoa farmers all over the world. In that same time frame, the cost of chocolate has gone up substantially. So the real question is whether this is just a much-needed correction.”

Likewise, Shawn Askinosie, founder and CEO of Springfield, Missouri-based Askinosie Chocolate, said the commodity price increases are not impacting his business.

“We already pay a super-premium price for cocoa beans, and have for the last 16 years,” he said.

Additionally, Askinosie said, the company opens its books to the farmers that it works with, in their own language.

“We should all be thinking of ways we can pay the farmers more, not less,” he said. “The fact that this is a news item is emblematic of the problem with ‘big chocolate.’”

Harshit Gupta, CEO of Madhu Chocolate, a bean-to-bar chocolate maker based in Austin, Texas, said his costs for cocoa beans have increased about 5 percent this year, which has essentially negated the discount the company garnered by buying in larger quantities.

Madhu Chocolate, which sells its bars and other chocolate products through several specialty stores and generates about 40 percent of its revenues via direct-to-consumer sales, buys through Uncommon Cacao, a specialty broker. Uncommon Cacao, a Certified B Corp, works closely with carefully vetted growers and releases detailed information about its pricing publicly.

Gupta said his company’s increased shipping costs — up 25-30 percent over the last two years — have been the biggest burden.

“It’s a significant cost increase,” he said. “It adds up to quite a few dollars for every batch of chocolate that we make.”

The company has been absorbing the cost increases and taking a reduced profit margin rather than pass the increased costs on to its customers, Gupta said, but it may re-evaluate its pricing strategy early next year.

Madhu Chocolate currently buys most of its beans from Colombia through Uncommon Cacao, but it also has a supplier in India, where flooding has also impacted Madhu’s ability to procure supply. Coincidentally, the Indian cocoa beans were the source of the company’s first award-winning chocolate, Gupta said, and the company might have to consider discontinuing the line.

Related: Flood Relief Fund to Assist Vermont Businesses; Retail Spending Increased in June.