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Cheaper raw materials do not translate into a decrease in chocolate prices in stores

Cheaper raw materials do not translate into a decrease in chocolate prices in stores

created Forex ClubApril 4 2023

The raw materials needed for the production of chocolate - cocoa, sugar, milk, aluminum and wood pulp - have fallen by 9% over the last year. However, this does not translate into prices in stores and there is currently no chance of lower prices for chocolate Easter bunnies. Food prices increased by 24% last year, and the price of a standard bar of chocolate exceeded PLN 5.

Chocolate is still more expensive

eToro analyzed the basket of goods needed to produce chocolate and chocolate products - Kakaosugar, milk, aluminum (foil) and wood pulp (used to make cardboard packaging) – global spot prices for these key ingredients have fallen by 9% over the last year*

However, we will not feel this drop in stores. Over there chocolate is getting more expensive, also due to the growing pre-Christmas demand. The average price of a 100g branded chocolate bar recently exceeded PLN 5. It is currently PLN 5,10, while a year ago it was PLN 4,50, and in March 2021, PLN 3,90. Therefore, the price of chocolate increased more slowly than the entire food category, as chocolate increased by 13%, and food – on average by as much as 24%.

There is a chance that falling commodity prices will translate into chocolate prices in the long run - at Christmas or Easter next year. However, with a high overall level of inflation, it is more likely that prices will stop rising rather than fall significantly.

Economic slowdown

While manufacturers can already enjoy lower production costs, unfortunately, families buying chocolate bunnies for the holidays they will pay for no more than a year ago. Commodity prices are much more volatile than store prices, and the pass-on of commodity price changes to store prices tends to be delayed. Anyone who has ever observed the crude oil market and petrol prices at petrol stations has noticed that sometimes drops in raw material prices do not affect the retail price.

The eToro index uses a weighted average and the data was collected on March 31, 2023. The fall in prices last year can be attributed in large part to lower prices for milk and aluminum material. The price of milk on the commodity market fell by 36 percent. since last year, which was driven by farmers increasing supply in response to higher prices, while aluminum prices fell amid fears of a global economic slowdown and an increase in production in China. Sugar prices, on the other hand, remain high due to unfavorable weather in Brazil, the world's largest producer. In addition, high energy prices mean that sugar is converted to ethanol to a greater extent, further increasing demand.

*Data for the index was obtained from Refinitiv on March 31, 2023. This is a simple weighted average of price increases for: 1) Cocoa ICCO US$/metric tonne. 2) Raw Sugar ISA US$c/lb. 3) Non-Fat Grade A Milk CME US$c/lb. 4) Aluminum 99.7% LME US$/metric ton. 5) Wood pulp NBSK Helsinki US$/metric ton.

About the author

Paweł Majtkowski - eToro analystPawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

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