The cost of producing the average milk chocolate bar has soared by 25% over the past 12 months as rising cocoa butter prices and inflation on other key ingredients have taken their toll on chocolate manufacturers.

Our pricing analysis suggests production costs for a chocolate bar - where ingredients account for 80% of costs and packaging for 20% - have moved from £1,505/t a year ago to £2,072/t this year. This works out as a 6p cost increase on the average 100g bar of milk chocolate.

The key culprit? Cocoa, which accounts for between 30% to 35% of the total production costs of a chocolate bar. Although cocoa powder has fallen by about 40% to £1,467/t over the past year, cocoa butter has gone the opposite way, climbing by about 70% to nearly £4,000/tonne - its highest in four years.

Cocoa butter prices have soared because cocoa bean prices are recovering from unusually low prices seen earlier this year further upward pressure has come from adverse weather on the Ivory Coast - the world’s key cocoa producer - and poor overall production forecasts for the 2013/14 season.

About 25% of a chocolate bar’s ingredients are accounted for by cocoa butter, with just 5% to 10% coming from powder, so it’s not difficult to see why soaring cocoa butter prices have had such a profound impact on overall production costs.

To make matters worse, other key ingredients have also gone up: whole milk powder (which makes up 20% of a chocolate bar’s ingredients) is up by 50% year on year and whey powder is up by 15%, as global supply of dairy powders remains tight.

At least sugar - which accounts for 49% of a chocolate bar’s ingredients - has become slightly cheaper year on year: although the EU quota system means EU sugar prices have not fallen as sharply as global sugar prices over the past 12 months, they are down 4% year on year to roughly £633/t.

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