Chocolate lovers have cause to cheer

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
Russian authorities have cut the import duty on cocoa to zero, giving chocolate lovers much to cheer about. Production of chocolate is becoming more expensive, but people are still willing to buy it, despite a reduction in real incomes.

With production costs for chocolate continuing to rise as the ruble has depreciated against the U.S. dollar and euro, authorities in Russia have reduced the import duty on cocoa to zero. Although the cost of chocolate production in Russia has risen sharply, Russians continue to consume it in large quantities.

The Eurasian Economic Commission, (EEC), the executive body of the Eurasian Economic Union (EEU) also adopted the zero tax on imports of cocoa. The EEU is a trading union launched by Russia and incorporating several former Soviet republics. The EEC stated that no duties on cocoa would be valid until Dec. 31, 2017. The tax rate earlier was three percent for cocoa paste and five percent for cocoa butter and cocoa fat.

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. Between January 2014 and mid-December 2015, the futures trading 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 by over 60 percent since the end of 2014.

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

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

"Cocoa products are the most significant raw materials for the production of chocolate. Due to the devaluation of the ruble, their prices have almost doubled over the last year and a half," said Timur Nigmatullin, an analyst at Finam investment company.

During the same period, the Russian market has seen a decline in the consumption of discretionary goods because of a reduction in real incomes. The zero duty will therefore be a relatively efficient measure of industry support to allow people 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. 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, he said.

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, in the case of cocoa there is no real substitute for imports, and demand falls as prices rise.

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