Aarhus restructures to shave costs

Related tags Cocoa butter European union Fat

Intensified competition in the ingredients marketplace and
disappointing orders for Cocoa Butter Equivalents (CBE) following
the new chocolate rules leads to job losses at Danish fats and oils
firm Aarhus United.

On 1 April the Aarhus-based head office of the vegetable fats and oils firm saw 24 people losing their jobs.

The marketing department - by far the hardest hit - took the blow with jobs axed across the board.

"The management closed the marketing department from 1 April. These are difficult times, but I think that's it for now,"​ a spokesperson at Aarhus United told FoodNavigator.com.

According to the spokesperson the shipping area of the company was also affected by the restructuring plans with the department moving out of house.

Vegetable fats and oils firm Aarhus United warned the market at the end of March that job losses were on the cards, following disappointing 2003 results.

"In order to meet the highly intensified competition, the strategy will place increased emphasis on measures to enhance cost efficiency. This will involve both short and long-term cost optimisation,"​ said the company in a statement.

Hit by a cut in demand from the food industry for bulk oils, declining exchange rates that shaved margins and higher raw material prices, the firm reported lower than expected earnings for 2003.

The company was also knocked by a disappointing take-up for chocolate butter equivalents following the amendments to chocolate rules in Europe.

The European Union's new chocolate law - Directive 2000/36/EC of the European Parliament and of the Council of 23 June 2000 relating to cocoa and chocolate products intended for human consumption​ - enforced in August 2003 - sets in stone that up to 5 per cent of the cocoa butter in chocolate may be replaced by specified vegetable fats and still qualify as chocolate.

A move that has opened up the market for CBEs (Cocoa Butter Equivalents) sold by companies like Aarhus United and Swedish firm Karlshmans. The permitted vegetable fats, such as palm oil and shea, are non-lauric vegetable fats rich in symmetrical monounsaturated triglycerides that are miscible with cocoa butter, compatible with its physical properties and obtained solely by the process of refining and fractionation.

But according to Aarhus confectionery firms have been slow to order CBEs. Volume sales in Denmark of vegetable speciality fats for the chocolate industry were 'not quite as big as expected, largely because the EU's so-called 5 per cent rule was not introduced by manufacturers as quickly as anticipated,' said Aarhus United.

This despite the fact that Aarhus asserts the use of chocolate vegetable fat - a cheaper alternative to cocoa butter - in chocolate gives the chocolate manufacturer greater flexibility in terms of texture, processing characteristics and costs.

According to the London-based International Cocoa Organisation​ it is difficult to quantify accurately the effects of the EU Directive which came into force in August 2003, but, prior to its implementation, the ICCO estimated that it would result in a total displacement of cocoa butter that represents, in terms of loss in demand for cocoa beans, a volume exceeding 184,000 tonnes.

"This potential loss in demand for cocoa results in long term declines in production and consumption of cocoa and in cocoa prices and producer revenues. In 2005/6 cocoa production would be 50,000 tonnes lower and prices about 8 per cent lower representing a loss in revenue to cocoa producers of US$780m in constant 1995 terms,"​ said the ICCO.

Elsewhere in the world there are different regulations regarding the use of cocoa butter substitutes. In the US federal standards on labelling - developed by the US Food and Drug Administration - allow only cocoa butter to be used in products sold as 'chocolate'. Products containing cocoa butter substitutes may not be sold as 'chocolate'.

Aarhus United said that annual savings of DK10 million could be achieved from the job cuts, with DK5 million slated for 2004.

Major European players in the fats and oils market include US firm Cargill, Swedish company Karlshamns and Loders Croklaan.

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