Mondelez strengthens Malaysia supply chain amid cocoa price surge

SHAH ALAM: Mondelez International is taking greater control of its chocolate supply chain in Malaysia by producing cocoa crumb locally, amid triple-digit growth in cocoa prices in recent years.

The move, backed by its new RM90 million Crumb Tower at its Cadbury confectionery plant in Shah Alam, means the company no longer needs to import cocoa crumb from Australia or South Africa.

Mondelez International Malaysia and Singapore managing director Simon Crowther said the new facility allows the company to produce both chocolate liquid and cocoa crumb at the same site before combining them to make finished chocolate products.

"Previously what we would do is we'd have the chocolate liquid made in the factory, but we would have to import the cocoa crumb from Australia or South Africa.

"So now what we do is we both make the chocolate liquid and the chocolate crumb in the factory," he said.

The change gives Mondelez greater control over what Crowther described as a key raw material in the chocolate-making process.

Cocoa crumb is a mixture of cocoa, milk and cocoa butter, which is combined with chocolate liquid before being moulded into the Cadbury Dairy Milk bar familiar to consumers.

The move comes as cocoa prices have become a major challenge for chocolate manufacturers globally.

Crowther said cocoa prices had recorded triple-digit growth over a longer period.

"It has been very challenging for anyone who works with cocoa as a raw material over the past three years," he said, while declining to comment on the company's profit margins or product pricing.

Although London cocoa futures had fallen to a near three-year low on Feb 27, the outbreak of the United States-Iran conflict at the end of February subsequently pushed the commodity price higher.

The futures rose by as much as £2,747, or 136 per cent, to £4,773 on July 9 from the start of the war.

However, the price has since eased to close at £4,314, bringing its year-to-date gain to just 1.55 per cent higher from £4,248 on Jan 2.

The commodity price is also 17.3 per cent lower than £5,216 a year earlier.

Crowther said the challenge begins at the source, with cocoa production heavily concentrated in West Africa.

He said about 80 per cent of global cocoa is grown in Ivory Coast and Ghana, meaning chocolate makers remain highly exposed to developments affecting crops in the two countries.

Mondelez similarly sources its cocoa from the region before bringing it to Malaysia for processing and refinement.

The local production of cocoa crumb therefore gives the Shah Alam facility greater control over an important stage between the raw cocoa bean and finished chocolate, while reducing its reliance on imported crumb.

However, the company is also facing the broader inflationary pressures associated with commodities and logistics.

The escalation of the US-Iran conflict, for instance, has pushed crude oil prices above US$100 and raised concerns over shipping and transportation costs.

This adds another potential cost burden for manufacturers that rely on imported raw materials.

Brent crude futures closed at US$108.47 a barrel on Tuesday, up 19.6 per cent from US$90.68 on Aug 31, amid the renewed conflict.

For Mondelez, the challenge is how to manage these rising input costs while keeping its products within reach of consumers.

Crowther said the company was working to preserve affordability rather than focusing solely on passing higher costs through to consumers.

"We know that consumers want to buy our brand and there are certain price points that they consider to be accessible for an everyday treat of chocolate, which is what Cadbury Dairy Milk should be," he said.

As part of that approach, Mondelez has been adjusting its pack sizes and product offerings to provide consumers with more affordable options.

"We try to make sure the products are the right price point so consumers can have small, more affordable packs," he said.

Crowther said the approach allows Mondelez to respond to elevated cocoa costs while retaining different price points for consumers, as the company continues to navigate volatility in both agricultural commodities and broader supply-chain costs.