Cocoa processing still a ‘three horse race’ after Olam’s ADM Cocoa buy: Analyst

By Oliver Nieburg contact

- Last updated on GMT

Olam's ADM Cocoa buy unlikely to affect prices for cocoa ingredients, says Euromonitor analyst
Olam's ADM Cocoa buy unlikely to affect prices for cocoa ingredients, says Euromonitor analyst

Related tags: Chocolate, Adm cocoa, Adm

Olam’s $1.3bn deal to acquire ADM Cocoa is likely to have little impact on the price of cocoa ingredients for chocolate makers because grinding capacity is still concentrated with three players.

Yesterday, Olam International became the world’s third largest cocoa processor after it agreed a $1.3bn deal to acquire ADM’s cocoa business.

The deal took its total capacity from 100,000 metric tons (MT) to 700,000 MT. The acquisition comes just over a year after Barry Callebaut acquired Petra Foods’ cocoa processing operations for over $750m.

No major impact

How is consolidation in the cocoa industry likely to affect chocolate confectionery manufacturers?

“I don’t think it’s going to have that much impact on the grand scale of things,”​ Lauren Bandy, ingredients analyst for Euromonitor International told ConfectioneryNews.

“The majority of cocoa is still coming from three companies…it’s still a three horse race.”

Olam now accounts for around 16% of cocoa processing globally, behind Cargill and the leading grinder Barry Callebaut.

cocoa grind capacity - callebaut
Cocoa grinding capacities globally before Olam's ADM Cocoa buy. Source: Barry Callebaut

Analyst: Cargill faced competition concerns

Cargill had previously been tipped to buy ADM’s joint cocoa and chocolate business when ADM announced plans​ to sell the divisions in June last year.

In September, Cargill agreed a $440 deal to buy all six of ADM chocolate factories​, but not its cocoa processing operations.

“There’s no way it would have passed,”​ said Bandy. “There would have been competition issues.”

ADM’s cocoa and chocolate business was part of a business unit that reported a $33m operating loss in fiscal 2013. ADM is now completely out of the cocoa and chocolate business. Bandy said that ADM was likely looking to raise funds to finance a $2bn takeover of Australian agribusiness GrainCorp​. “They were looking for more stable commodities,” ​said Bandy.

Cocoa ingredient prices

According to Bandy, Olam’s acquisition is unlikely to have a major impact on the price of cocoa butter, which reached record highs in September, but have since fallen.

She said cocoa and cocoa ingredients prices could be influenced more by the potential spread of Ebola and usual indicators such as weather, pests and diseases.

Will Olam reduce capacity?

ADM Cocoa factories

  • Mississauga, Canada
  • Koog aan de Zaan and Wormer, Netherlands
  • Mannheim, Germany
  • Ilhéus, Brazil
  • Abidjan, Côte d'Ivoire
  • Kumasi, Ghana
  • Singapore
    Existing Olam cocoa plants:​ Nigeria, UK, Spain and Côte d’Ivoire

Through the deal, Olam acquired ADM’s cocoa liquor, powder and butter capabilities at eight factories, which will add 600,000 MT capacity.

It also added deZaan, UNICAO, Joanes brands as well as 10 warehouses and four innovation centers. 1,500 ADM Cocoa employees will join Olam, including 30 R&D specialists.

“Olam’s capacity has gone up a lot,”​ said Bandy “I doubt they will reduce capacity – I think demand is there.”

Olam said in a release that it hoped to capitalize on rising demand for cocoa products in the developed US and European markets as well as rising consumption in emerging markets such as Asia.

Laurent Pipitone, director of the economics and statistics division at the International Cocoa Organization (ICCO) told us last year​ that even if a buyer came in for ADM Cocoa and cut cocoa processing operations, a small reduction would not impact the supply and demand balance as there has been a lot of investment in cocoa processing in recent years, while demand for chocolate had stalled.

The ADM Cocoa sale is expected to close in the second quarter of 2015, subject to regulatory approval.

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