Russia’s chocolate lovers will still get their fix

The decision to reduce import duties on cocoa products to zero was taken because of the rising prices of cocoa beans.

The decision to reduce import duties on cocoa products to zero was taken because of the rising prices of cocoa beans.

Reuters
The Russian authorities have cut the import duty on cocoa to zero. The production of chocolate is becoming more expensive, but people are still willing to buy it, despite a reduction in real incomes.

As production costs for chocolate continue to rise in connection with the ruble’s depreciation against the U.S. dollar and euro, Russian authorities have reduced the import duty on cocoa to zero.

A similar decision has been taken by the Eurasian Economic Commission, or EEC, the executive body of the Eurasian Economic Union – an integration association, created on the initiative of Russia on the basis of several former Soviet republics.

According to the Commission, the zero duty rate will be effective until Dec. 31, 2017; earlier, it was 3 percent for cocoa paste and 5 percent for cocoa butter and cocoa fat.

Although the cost of chocolate production in Russia has risen sharply, Russians continue to consume it in large quantities.

Why zero duty is necessary

The decision to reduce import duties on cocoa products to zero was taken because of the rising prices of cocoa beans. From early January 2014 to mid-December 2015, the futures prices for cocoa beans rose by 36 percent on the London Stock Exchange and by 26 percent in New York, said the EEC.

At the same time, the exchange rate of the Russian ruble against the U.S. dollar and the euro has fallen since the end of 2014 more than by 60 percent.

Moreover, according to the EEC, Russia's share of consumption of imported cocoa paste was about 41 percent in 2014, while cocoa butter accounted for about 75 percent, the Russian business daily Kommersant reported.

Therefore, as early as mid-2015, the Association of Russian Confectionery Industry Enterprises (ASKOND) appealed to the Economic Development Ministry with a request to reduce import duties on cocoa products to zero.

"Cocoa products are the most significant raw materials for the production of chocolate, while, due to the devaluation of the ruble, their prices have almost doubled over the last 1.5 years," said Timur Nigmatullin, an analyst at investment company Finam.

At the same time, the Russian market is seeing a decline in the consumption of discretionary goods due to a reduction in real incomes. Therefore, the zero duty will be a relatively efficient measure of industry support to allow the population to continue eating sweets, said Nigmatullin.

How popular is chocolate in Russia?

For Russia, chocolate and cocoa products are traditional treats, accounting for up to half of the confectionery market in physical terms, said Nigmatullin.

According to him, up to 99 percent of households purchase such products at least once a year, while the average Russian consumes about 4.5 kg of chocolate per year.

In 2016, a decline in production and imports by 30 percent is possible due to the rising prices of cocoa beans and the weakening ruble, said Georgy Vashchenko, head of Russian stock market operations at the Freedom Finance investment company.

According to Vashchenko, there is nothing to replace imports with, and demand falls as prices rise.

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