Cocoa Imports by Indonesia Jumping on Asian Chocolate Demand

(Businessweek) – Cocoa purchases by Indonesia, the third-biggest grower, will probably increase fourfold to a record this year as the government plans to scrap an import tax, according to the country’s grinders association.

Shipments may reach 120,000 metric tons from 30,000 tons last year, said Piter Jasman, chairman of Indonesian Cocoa Industry Association. Capacity to process beans into powder and butter may climb 67 percent to 600,000 tons from 360,000 tons on new plants and expansions, he said in an interview. A 5 percent duty will have to be removed as domestic grinders face a shortfall of 100,000 tons this year, Trade Minister Muhammad Lutfi said April 11.

Futures in New York climbed 29 percent in the past year as demand outstripped supply. Increased processing in Indonesia to meet chocolate consumption in Asia could reduce bean exports the government estimates at 188,000 tons for 2013. Less supply may widen a global deficit forecast by the International Cocoa Organization at 115,000 tons this season and boost costs for chocolate makers including Nestle SA and Lindt & Spruengli AG.

“The main issue is that there will be a shortage,” Jasman said from Tangerang, 25 kilometers (16 miles)west of Jakarta. Scrapping the tax will help Indonesian grinders compete with processors in Malaysia and Singapore where no such duties are imposed, he said on April 10.

Bean Demand

The harvest in Indonesia will be little changed at 480,000 tons, Jasman said. That compares with an estimate of 400,000 tons from the Indonesian Cocoa Association, a growers group. The growers’ prediction would mean the lowest crop in a decade and compares with 450,000 tons in 2013. The cocoa association says exports will drop 20 percent to 150,000 tons this year.

“We’ve been talking to the agriculture ministry” to prepare for removing the tax, Lutfi told reporters in Jakarta. The minister said last month that the levy could be abolished to meet rising bean demand from local processors. Exporters pay tax of 5 percent to 10 percent, depending on New York prices, to ship beans from Indonesia.

“The duty will most likely be removed” and that would boost investment and employment in the industry, said Jasman, who is the founder of grinder PT Bumitangerang Mesindotama, known as BT Cocoa. “If it’s not removed, bean imports may be the same as last year.”

While the tax-free import of beans will benefit processors, it will reduce demand for domestically produced cocoa, according to the growers association.

Processing Capacity

“Indonesia will be flooded with imported beans,” Zulhefi Sikumbang, chairman of the growers group said in an interview with Bloomberg TV Indonesia yesterday. “The government needs to come up with an instrument to protect the farmers if they want to remove the import tax.”

The local industry processed only 325,000 tons of cocoa beans last year, said Sikumbang. Unless the grind increases to about 500,000 tons there is no need to remove the tax, he said.

The grind, an indication of demand, increased 10 percent in Asia in the fourth quarter from a year earlier, according to the Singapore-based Cocoa Association of Asia.

Barry Callebaut AG (BARN) said last year it opened a plant in Indonesia with an annual capacity of 33,000 tons. Cargill Inc. said in December it will start its 70,000-ton plant in Java in 2014. The country will import fermented beans from West Africa to add taste to cocoa powder and butter, Jasman said.

Chocolate sales growth in China is beating the rate of global expansion, Mohamed Elsarky, president of Godiva International, said in an interview on March 26 in Singapore. Sales doubled to $2.4 billion in 2013 from $1.2 billion in 2008, making China the world’s 11th-largest market, Elsarky said, citing Euromonitor data.

Cocoa on ICE Futures U.S. traded at $2,982 a ton today, after reaching $3,039 on March 17, the highest since September 2011. Ivory Coast is the top grower followed by Ghana.