- Around 90-95% of exported shea is used in cocoa butter equivalents (CBEs), which are blended with palm oil and used to replace or improve cocoa butter in chocolate. - Demand for CBEs depends on chocolate demand trends, legislation defining chocolate, consumer preferences, and price. Chocolate demand is growing around 2% annually, led by emerging markets in Asia, South America, and Eastern Europe. - Cocoa production is vulnerable due to aging trees, disease, and low yields. The key producers of Côte d'Ivoire and Ghana have increased production but yields remain low. Future output relies on increasing yields through new hybrid varieties.

1. World Cocoa and CBE markets
Presentation to Global Shea 2013
By Richard Truscott, LMC International,
Oxford, UK www.lmc.co.uk

2. Outline
• The use of CBEs
• Chocolate and CBE demand trends
• Cocoa production
• Outlook

3. Background: The use of CBEs
• Around 90-95% of exported shea is used in the production
of cocoa butter equivalents (CBEs).
• These are used as a replacement for cocoa butter in chocolate
and are typically a blend of an exotic fat (shea, sal, illipe, etc)
and palm mid-fraction (a product of palm oil).
• CBEs are used either to:
• Reduce cost (CBEs are cheaper than cocoa butter); or
• Improve functionality (i.e. changing the melting point, hardness
and reducing bloom).
• The outlook for shea (and CBEs) is closely linked to trends in the
chocolate industry and cocoa market.

4. Demand for CBEs depends upon:
• Demand for chocolate confectionery
• Legislation (chocolate is one of the few products that
has legal definition.This varies between markets)
• Consumer preferences for products containing CBEs
• Price

5. Chocolate product consumption is growing at
around 2% per annum. Recession hit demand in
2009. Growth has resumed at a slower pace. There
are different trends between emerging and mature
markets.
8
7
6
5
mn tonnes
4
3
2
1
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

6. Mature market consumption fell in 2011/12 but
demand continued to rise strongly in the
emerging markets
Asia/Pacific
Brazil
US
C&E Europe
W Europe
-3% -2% -1% 0% 1% 2% 3% 4% 5% 6%
Change in consumption

7. This trend follows that of recent years, where
the emerging markets have led growth
consumption growth index (2000/01=100)
160
150
140
130
120
110
100
90
2000/01 2002/03 2004/05 2006/07 2008/09 2010/11
Advanced Emerging

8. Belgium
Swit zerland
Norway
Ger many
Austria
Despite this emerging markets cocoa per capita
Ireland
UK
France
Denmark
Slovenia
towards future growth. Mature markets are
Australia
Finland
Greece
consumption levels are still low, pointing
New Zealand
Canada
US A
Netherlands
Sweden
Spain
Czech
Port ugal
Hungary
Poland
Italy
Russia
Slovakia
Japan
Brazil
Romania
Chile
Colombia
Argentina
WORLD
Malaysia
close to saturation
Mexico
Ukr aine
Korea
Venezuela
South Africa
Philippines
Turkey
Thailand
Nigeria
Indonesia
China
India
6
5
4
3
2
1
0
Per capita consumption (kg per annum)

9. Income is the key driver of increased
consumption (along with a growing middle class
and increased urbanisation)
4.5
Norway
Germany
4.0
Per capita consumption
UK
3.5
Slovenia
3.0 Australia
2.5
Czech Rep US
2.0
1.5
Russia
1.0
India Korea
0.5
China
0.0
0 10,000 20,000 30,000 40,000 50,000 60,000
GDP per Capita

10. The fastest growth is in the BRIC and ASEAN
countries. These are also important markets for
CBEs.
Korea
Indonesia
India
China
Brazil
Russia
0% 2% 4% 6% 8% 10%
Annual growth %

11. Cocoa consumption in emerging Asian markets
has doubled in the last decade. Much of this is
compound chocolate, ice cream, cakes, drinks, etc.
350
300
250
'000 tonnes
200
150
100
50
0
2
3
4
5
6
7
8
9
0
1
2
/0
/0
/0
/0
/0
/0
/0
/0
/1
/1
/1
01
02
03
04
05
06
07
08
09
10
11
20
20
20
20
20
20
20
20
20
20
20
China India Indonesia Korea Thailand Turkey Other emerging Asia

12. The growth is largely of cocoa powder based
products
• This is as powder based products are:
• Cheaper than chocolate
• Have a lighter taste than chocolate (important for new
consumers)
• Do not melt in hot climates

13. This points towards higher growth for powder
based products in the future
Source: Barry Callebaut
Chocolate bars
Chocolate tablets
Ice cream
Tobacco
Compound
Chocolate
Flavoured milk
drinks
0% 1% 2% 3% 4% 5% 6% 7%
Forecast growth

14. Developed market trends can be seen from
German data. Consumption has consistently
fallen since 2009
Total
Solid Bars
Pralines
Filled Bars
-4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5%
Change in Consumption
2009 2010 2011 2012

15. As demand for powder has increased so have
powder prices relative to butter. The relationship
between prices is constantly evolving. Butter ratios
have risen strongly in the last 6 mths.
3.0
2.5 US ratios
2.0
1.5
1.0
0.5
0.0
Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan-
08 08 09 09 10 10 11 11 12 12 13
butter powder

16. Shea butter prices have remained stable
despite continuing fall in cocoa butter prices
8,000
7,000
trade unit value ($ per tonne)
6,000
5,000
4,000
3,000
2,000
1,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
cocoa beans cocoa butter shea butter cocoa powder

17. It is cocoa butter prices that determine shea
butter prices, not cocoa prices
7,000 3,500
cocoa butter export unit value ($/tonne)
shea butter import unit value ($/tonne)
6,000 3,000
5,000 2,500
4,000 2,000
3,000 1,500
2,000 1,000
1,000 500
Note: 2012 trade data not complete. Values calculated from available months trade data
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
cocoa butter shea butter

18. • Cocoa Production & Price

19. Cocoa prices rose again in 2012, but have
fallen recently
4,000
3,500
$ per mt (ICE) and £ per mt (LIFFE)
3,000
2,500
2,000
1,500
1,000
500
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
ICE2nd Position LIFFE2nd Position

20. Côte d’Ivoire production has remained strong
despite falling from 2010/11 record
1,800 700
1,600
600
Production ('000 tonnes)
1,400
500
Yield (kg/hectare)
1,200
1,000 400
800 300
600
200
400
100
200
0 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
3
/0
/0
/0
/0
/0
/0
/0
/0
/0
/1
/1
/1
/1
00
01
02
03
04
05
06
07
08
09
10
11
12
20
production Yield

21. Fixed price under new reforms has given farmers
stability, but many of the long term problems
remain unresolved…
• Ageing trees, disease and low fertiliser use mean that yields remain
low
• While the fixed price gives stability, the level is still low compared to
other crops e.g. rubber, oil palm
• Cocoa farming is not attractive to younger generation who prefer to
migrate to the city
• Improved yields key to increasing output. Newly planted hybrids yield
2 or 3 times the average.

22. Ghana output doubled between 2000/01 and
2010/11. But high inflation means grower price
is now less attractive in real terms.
1,200 600
1,000 500
Production ('000 tonnes)
Yield (kg/hectare)
800 400
600 300
400 200
200 100
0 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
3
/0
/0
/0
/0
/0
/0
/0
/0
/0
/1
/1
/1
/1
00
01
02
03
04
05
06
07
08
09
10
11
12
20
production Yield

23. Indonesia still struggling with disease (CPB and
VSD) and competition from other crops. Brazil
and Ecuador have increased output.
600
500
400
'000 mt
300
200
100
0
1
2
3
4
5
6
7
8
9
0
1
2
3
/0
/0
/0
/0
/0
/0
/0
/0
/0
/1
/1
/1
/1
00
01
02
03
04
05
06
07
08
09
10
11
12
20
20
20
20
20
20
20
20
20
20
20
20
20
Indonesia Ecuador Brazil

24. Cocoa supply/demand summary
• 2012/13 return to deficit after two surpluses
• Longer term supply remains vulnerable and increased
production will rely on increasing yields
• Stock levels estimated at a minimum of around 1.9 mn mt
• Stock/Grind ratio 47% in 2012/13

25. The stock grind ratio is the key determinant of
cocoa prices
8,000
7,000
6,000
5,000
Real price
4,000
3,000
2,000
1999/2000 - 2011/12
1,000
0
10% 20% 30% 40% 50% 60% 70% 80% 90%
Stock:consumption ratio

26. CBE outlook:
• Little change in EU despite legislative changes
• No real prospects of legislative change in US
• Strong growth in the emerging markets.
• Developments in cocoa butter prices are key.

27. Thank You
www.lmc.co.uk