Cocoa costs barely affect how much you pay for a Freddo. So, be happy

A recent MainVscek article looking at the soaring prices of Australian “Freddo frog” chocolates (known simply as Freddos in the UK, because it’s obvious who Freddo is) prompted a valid response from readers of that austere organ:

Chocolate lovers are presumably divided on this point. On the one hand, AND legally speaking, a chocolate, as opposed to something that simply tastes like chocolate. On the other hand, like most milk chocolate, it’s mostly a lot of non-chocolate stuff.

Cocoa is the main problem for chocolate manufacturers, because its price has increased. As a result, they would really prefer to sell you as little chocolate as possible when you buy it.

Bloomberg published an interesting article on the subject in February:

Faced with limited room for further price increases, companies are reducing packaging, using automation to cut production costs, and promoting products with less cocoa or other main flavors…

The shiVscek from cocoa butter to non-cocoa substitutes works best with non-premium chocolate applications, such as thin coatings on granola bars and fillings in baked goods, rather than more traditional chocolate bars. Non-cocoa substitutes have long been more common in warm countries, where cocoa butter’s low melting point can be a problem.

But we digress.

An obvious question is this: if my chocolate bar is only 20% chocolate, why is the price of cocoa so important?

Well, not so. Cocoa prices are a small part of the picture when it comes to milk chocolate inflation, although (for obvious reasons) they are one of the parts that producers are most likely to talk about.

There is a widely used estimate created by the NGO Oxfam, which breaks down the actual cost of a bar in this way:

If this is even approximately correct, the actual impact on cocoa prices should be entirely marginal and (brace yourselves) the multinationals are screwing you.

So what should we do, not write an article? No, let’s be stupid: how much would a Freddo cost if its price era entirely derived from the cost of its key ingredients?

For some reason, Freddoes have taken on a memetic status when it comes to inflation. Anyone in Britain over… 25?… remembers that they used to cost 10p in the early 2000s. Now, they apparently cost 25p and up (35p in the Vscek’s local supermarket), and they’ve been priced in both directions: from 17g to 20g in 2007, then back to 18g in 2011. Creating a price index is tricky, because current prices are so different.

Here’s the list of ingredients for an 18g UK Freddo (which is essentially the same for all Cadbury chocolate labelled Dairy Milk):

MILK**, sugar, cocoa butter, cocoa mass, vegetable fats (palm, shea), emulsifiers (E442, E476), flavourings.

Cadbury (part of Mondelez) claims that its Dairy Milk contains “the equivalent of 426ml of fresh liquid milk in every 227g of milk chocolate”.

Thinking about all this made Alphaville’s brain hurt, so we went to Sainsbury’s to do some journalism.

Fortunately, the Freddo/Dairy Milk family packaging offers more details:

MILK SOLIDS 20% MINIMUM, REAL 23%, COCOA SOLIDS 20% MINIMUM

Since the ingredients are always listed from largest to smallest, this gives us most of what we need to deconstruct the bar. 23 percent is milk powder and 20 percent minimum It’s cocoa, with sugar somewhere in the middle, and about a third of the bar still to be quantified with certainty.

Of course, the amount of sugar has to be within a fairly narrow range. Every 100g of Dairy Milk contains 55g of sugar (10g in an 18g Freddo bar). If up to 23g of this comes from the sugar itself, where do the other 32g come from? The internet suggests that milk powder is about 50 percent sugar, so we have another 11.5g. The cocoa mass has to have a bit more. The rest, look it up. (Educated comments welcome.)

Ugh. For the sake of progression, let’s assume the cocoa is at a minimum of 20 percent and only the sugar is halfway between that and the milk. So, 21 percent.

That leaves 35.5 percent of the bar to be accounted for. Flavorings are presumably minimal. The texture-enhancing emulsifier E442, ammonium phosphatidylcholine, makes up 0.5 percent of “all chocolate products” according to the European Food Information Council. Assuming that’s correct and the descending-quantity logic continues in parentheses, E476, polyglycerol polyricinoleate, must be less, but let’s say about the same.

That leaves maybe 34.5 percent palm oil and shea butter, with palm oil (the presence of which oVsceken makes people unhappy) leading the way and neither individually above 20 percent. Let’s split the difference roughly, at 17.5 percent palm and 17 percent butter. Voilà, a bar of raw chocolate:

Delightful.

Now, the calculation of the goods.

First, a problem. The mix of ingredients in UK dairy milk has changed over the years, with the general consensus being that this has meant the inclusion of more sugar and palm oil. That’s why it tastes worse than you remember as a kid.

So let’s imagine two things that are clearly wrong when creating a graph:

1) The only determining factor in the price of Cold is the cost of its ingredients
2) The recipe for Freddo has remained the same since the beginning of the century.

We could construct a basket of cow’s milk components much more easily, using a fairly random assortment of generic contracts for milk (milk powder is not very old, but moves in a fairly similar way), sugar, cocoa, and palm oil (we couldn’t find a price for shea on the Bloomberg Terminal).

We know, on a spiritual level, that Freddos cost 10p in the year 2000. So we rebase our basket as close to that time as possible and weight the components, assuming:

— the price of 10 pence in 2000 was correct according to his terms.
—palm oil and shea butter have followed the same path as other fats, which is unlikely but necessary.
— the “others” can be ignored.
— that if something takes a long time to do, then it is worth doing ¯\_(ツ)_/¯

Finally, we need to reconsider the issue based on price, rather than proportion, otherwise we might end up with some strange distortions.

Some late spreadsheet work, here’s the result:

What can we learn from all this, if we can learn anything?

— [Ed: oh]

Further reading
—How much does a pint of beer cost? An Alphaville investigation