World Domination In Chocolate, Cocoa Products?

World Domination In Chocolate, Cocoa Products?

Cargill Inc, one of the world’s leading cocoa traders, is in the final stages of a deal worth as much as $2 billion to buy Archer Daniels Midland Co’s cocoa business, a takeover that could mean price setting and an industry dominated by two companies, according to a Chicago Tribune report.

Combining two of the world’s top cocoa merchants and bean grinders would create a company big enough to compete with Zurich-based Barry Callebaut, the world’s largest maker of industrial chocolate products, the report said.

An official announcement could be days away, unnamed sources told the Chicago Tribune.

“As the cocoa market will now be dominated by both Barry Callebaut and Cargill, the small players need to be competitive or they might risk being squeezed out of the market,” said Vanessa Tan, an investment analyst at Phillip Futures in Singapore.

U.S.-based ADM’s business spans Africa, Asia and the U.S. The agribusiness company began conducting due diligence earlier this year, the report said.

Some analysts and bankers say competition concerns would arise, particularly in Ivory Coast and Ghana, the world’s top two growers, where both companies own processing plants.

ADM, Cargill and Barry Callebaut account for up to 40 percent of world cocoa bean grinding capacity and also dominate exports from the top producing nations, according to a 2008 U.N. report on the global cocoa industry.

Grinders turn cocoa beans into butter and powder, the main ingredients for chocolates. Cocoa butter, which gives chocolate its melt-in-the-mouth texture, is trading at its highest premium since 2008 in Asia, and is at eight-year highs in the U.S. due to tight supply and rising demand.

Cargill and Barry Callebaut combined will account for more than 50 percent of global capacity, the report said. In the future, smaller grinders will find it tougher to compete with the giants, said a Singapore-based dealer. “You might see consolidation among the smaller ones.”

Just 10 companies account for two-thirds of global grinding, the report said.

ADM wants to cut its exposure to reduced profit margins resulting from rising cocoa processing capacity, traders said. The company will concentrate on grains.

Cargill has invested heavily in cocoa and runs cocoa plants in West Africa – the No. 1 growing region – Brazil, Indonesia and major consuming countries in Europe. The company is betting on rising long-term demand for chocolate as consumers in emerging markets develop a taste for it.

Cargill bought German cocoa grinder Kakao Verarbeitung Berlin in 2011 and in May began building a $100-million cocoa processing facility in Indonesia.

ADM has cocoa processing facilities in the U.S., Ivory Coast, Ghana, Singapore and Brazil.