Kraft Foods' purchase of Cadbury is likely to have repercussions throughout the cocoa supply chain as a newly created chocolate giant seeks to drive down costs. The new company will be the top player in the chocolate and confectionery industry by revenue, overtaking Mars-Wrigley. Accordingly, traders and analysts expect it to use its increased clout to achieve promised cost savings. The U.S. food group has targeted annual cost savings of at least $675 million a year.

Cocoa futures on ICE rose to a near 31-year high of $3,510 a tonne in mid-Dec. 2009 as key producers in West Africa struggled to ramp up supply in response to long-term demand growth, resulting in a prolonged drawdown in global stocks. The cocoa market has fallen back slightly in the last few weeks, currently trading around $3,000 per tonne, but is still around double prices paid for several years in the mid-2000s.

"It will be a challenge to suppliers. What it means is we need to be more efficient," said Piter Jasman, chairman of the Indonesian Cocoa Industry Association. One Singapore-based cocoa trader said driving down costs will imply more central buying and thinner margins of suppliers. He noted margins for suppliers were already very poor.

Cocoa consumption had been growing much faster in Asia and eastern Europe than in more developed markets such as the United States and western Europe before the global economic downturn early last year which stalled the expansion.

Analysts said demand in markets such as China was likely to drive long-term growth in cocoa and chocolate demand.

Source: flex-news-food.com