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Published December 23, 2013, 09:18 AM

Cargill boosts chocolate making

Cargill will spend $48 million to expand its chocolate making facility in Mouscron, Belgium, in the next two years as demand grows in Europe. New production lines are set to be operational in summer 2014, the company says.

By: Marcy Nicholson, Reuters

NEW YORK — Cargill, one of the world’s top cocoa dealers, is doubling capacity at its biggest European chocolate facility to meet growing demand, the company says, despite expectations of another global bean deficit.

Cargill will spend $48 million to expand its chocolate making facility in Mouscron, Belgium, in the next two years as demand grows in Europe. New production lines are set to be operational in summer 2014, the company says.

The capacity of the Belgian plant, one of two owned by the company there according to its website, was not provided.

The move comes as cocoa prices hover around the highest levels in more than two years, sugar nears five-month lows and sources say Cargill is in negotiations to buy Archer Daniels Midland Co.’s cocoa business.

“There are good profits to be made in making chocolate as retail prices are rising, consumers are eating more, and sugar is half the price it was and accounts for around 50 percent of chocolate,” one veteran cocoa dealer says.

Cargill is one of the four so-called “ABCD” companies that dominate the flow of global agricultural commodities and is one of the biggest buyers of cocoa with bean operations in Europe, West Africa, Asia, the U.S. and Brazil.

Europe is by far the biggest cocoa processing and chocolate consuming region, with roughly 40 percent of the world’s cocoa grinding taking place in factories there, International Cocoa Organization data showed.

Grinding is the processing of beans primarily into butter used to make chocolate bars and powder to make chocolate flavored treats such as biscuits.

The Cargill expansion comes as the company has been negotiating to buy ADM Cocoa, a deal that legal experts say could raise anti-trust issues in Europe, where the two companies overlap. ADM is also an “ABCD” company.

In October, Reuters reported that Cargill was in the final stages of a deal to buy ADM Cocoa.

Veteran dealers noted the investment in Belgium is much smaller than the $2 billion valuation for ADM Cocoa.

“Cargill is a long-term planner, and that is a strategic commitment to the business rather than tactical and motivated by short-term supply-and-demand gyrations,” says one veteran cocoa dealer.

While Cargill Cocoa & Chocolate has 12 production facilities in Europe, ADM has five, its websites showed.

The expanded factory will obtain cocoa butter and other raw materials from Cargill’s plants in The Netherlands and France, the company says.

The expansion coincides with global cocoa grinding capacity that is well above current needs and cutting into some profit margins at that level.

The over-capacity is further exacerbated by widely expected global cocoa deficits during the past 2012 to '13 crop year (October to September) and current 2013 to ’14 year because of lower production and better-than-expected demand. The ICCO upwardly revised its world grindings in 2012 to '13 to 4.05 million metric tons, a measure of demand, up 2.4 percent above the previous season.