Bethel Finance: World cocoa price down 38%; Strauss price up 59%

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Bethel Finance news:
Most commodities prices fell in 2011, but the falls were not reflected in consumer prices. The biggest drop was in the price of cocoa beans, which fell 33.4% in 2011 to $2,109 per ton, after falling 8% in 2010, for a total drop of 38% in two years.

The price of cocoa beans directly affects prices of a wide range of consumer products, from powered cocoa, to chocolates, and cakes. An investigation by "Globes" found that, despite the plunge in the commodities price for cocoa beans, Israeli consumers have not benefited, as food manufacturers raised their prices to retailers, who passed the rises on to consumers.

In the past two years, Strauss Group Ltd. (TASE:STRS) has raised the price of the 150-gram and 500-gram packet of Elite cocoa powder by 59%. The price of Elite Chocolit chocolate drink rose 25%.

Following last year's social protest, and under consumer pressure, Strauss announced a price reduction of just 7% on cocoa, and limited the reduction to the 500-gram packet, even though the 150-gram packet has more sales. As part of the response to the consumer protest, the company cut the prices on several additional chocolate products by 5-10%.

Unilever Israel Ltd. applied the same strategy, raising prices for its chocolate products. In March 2011, it raised the price of its Click chocolate bars by 4%.

Surprisingly, small manufacturers and retail chains did not exploit the plunge in cocoa bean prices to win market share; the price of Elite cocoa is the same as the price of cocoa by other food companies. In addition, the price gap between Elite cocoa and retailers' private labels is only 15%.

Wheat prices down; consumer prices up

Wheat is another commodity with a direct impact on a wide range of products. The price of wheat fell 24.4% in 2011 to $6.52 per bushel. The current price is 33.5% less than the record price of $13.20 per bushel in 2008.

Nonetheless, in this case, too, Israeli consumers have not benefited from the sharp drop in wheat prices, and prices for wheat-based products did not fall, and actually rose.

Cocoa beana and wheat are not the only commodities prices to have fallen. The price of soy beans fell 14.7% in 2011 to $14.70 per bushel, 17.5% below the peak price in 2008. The price of rice fell 3.9% in 2011 and is down 18.2% from its peak price. The price of sugar fell 1.9% in 2011, but is higher than the price in 2008. When the global price of sugar rose, the prices of products strongly affected by the price of sugar also rose, but since then, despite the erosion in the commodity price, there has been no decline in consumer prices.

Unilever stated in response: "During 2011, our company did not raise the prices of its chocolate bars. In June, prices of non-packaged chocolate snacks, of which chocolate is only one ingredient, rose 4%, as a result of sharp rises in prices of the raw materials of which they are made (such as sugar, cocoa powder, and milk). Our company has absorbed and continues to absorb most of the rises in prices of raw materials for its products rather than passing them on to the consumer."

Strauss stated in response: "Between 2007 and 2011, prices of sugar and cocoa rose 97% and 88% respectively. In that period, the effective prices to the consumer of cocoa and of Chocolit rose by only 51% and 18.8% respectively. It is important to stress that in periods in which there is a temporary fall in prices of raw materials, Strauss steps up its discount and special offers activities."