(Reuters) – Barry Callebaut, the world’s biggest industrial chocolate maker, said on Wednesday it will close a cocoa factory in Thailand and cut capacity in Malaysia, the latest sign that over capacity and falling demand in Asia are hurting profits.
The Swiss-based company, which makes chocolate for companies including Hershey Co, reduced its sales growth targets to try and maintain profit margins after reporting a worse than expected drop in full-year net profit.
Barry Callebaut will close a cocoa factory in Bangpakong, Thailand, by the end of January 2016, and immediately reduce production capacity in Port Klang, Malaysia, the company said.
“A challenging market environment characterized by a historically low combined cocoa ratio triggered by grinding over-capacity and low demand for cocoa products had a negative impact on profitability,” the company stated in its full-year 2014/15 results report.
Global cocoa grinders have faced a poor combined ratio, the processing margin for both cocoa butter and powder, since early 2014 as bean prices soared to four-year highs. This caused many large chocolate companies to raise retail prices that, in turn, hurt demand as consumers reacted to sticker shock.
Cocoa demand in Asia, an emerging market for chocolate, has been hit particularly hard, with Hershey noting slowing growth in China and as cocoa grinding, which separates the beans into powder and butter, has fallen in Asia for the past five quarters.
Asian cocoa bean processing has been shifting from Malaysia to Indonesia, with international companies such as Olam International Ltd and Cargill opening large cocoa processing facilities there in 2014. Meanwhile, some independent and older grinders have reportedly closed down in recent years as they were unable to compete.
Indonesia is the world’s third biggest cocoa producer.
In 2013, Barry Callebaut bought Singapore-based Petra Foods’ cocoa business. (Reporting by Marcy Nicholson; editing by Grant McCool)
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