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Chocolate Wars

Warren Buffett gets stirred up; candymakers battle. A proposal to redefine chocolate is roiling the nation’s $16.3 billion industry.

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Chocolates roll by on the See's Candies production line.
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Don’t mess with Warren Buffett’s chocolate.

Improbably, the Oracle of Omaha, who might not be blamed if he said he had more important things to do, finds himself enmeshed in one of the odder food fights of late—a regulatory dustup over whether the traditional standards for making chocolate in the United States ought to be changed. It revolves around the question of whether a simple and elegant ingredient known as cocoa butter, which gives chocolate its creamy smoothness and texture, can be replaced, at least in part, by cheaper ingredients.

The disagreement involves the Food and Drug Administration, the federal arbiter of food standards, and has pitted mass candy manufacturers such as Hershey and Nestlé against smaller, higher-end chocolate makers such as 139-year-old Guittard Chocolate and See’s Candies.

To detractors of the proposed change, what’s at stake is the very future of the nation’s chocolate industry and its $16.3 billion in annual sales. Buffett’s interest is certainly pecuniary. His holding company, Berkshire Hathaway, got into the chocolate business when it bought See’s, an old-line San Francisco Bay Area chocolate maker, for $25 million in 1972. Given that See’s sales, these days more than $300 million annually, depend largely on the company’s reputation for quality, there are no plans to mess with any formulas, Buffett says. “If you’ve got recipes that people like, you don’t change them.”

Meanwhile, supporters of the move suggest high-end chocolatiers are overreacting. “I don’t think there’s any cause for alarm,” says Robert Earl, senior director of nutrition policy for the Grocery Manufacturers Association, a trade group that represents some of the big chocolate makers and has been pushing for the change. “Nothing is mandatory. The language regarding chocolate is just descriptive.”

Here’s the issue: For as long as chocolate has been made, it’s been smoothed out with the elixir called cocoa butter, an emulsified form of cacao that gives the finished product its silky texture. In the United States, the F.D.A. mandates that a product can’t legally be labeled as chocolate unless cocoa butter is part of the formula. But because of a drought and political violence in Ivory Coast, a major source for cacao beans, the price of cocoa butter has skyrocketed. This has prompted some of the major chocolate makers, Hershey among them, to lobby the F.D.A. by way of a trade-group petition for a change that would let them substitute such cheaper ingredients as vegetable oil and dried milk for cocoa butter and still call their products chocolate.

Complicating matters is a dramatic shift in the chocolate market. Since 2001, sales of premium chocolate have climbed 129 percent, while at some large manufacturers, sales of mass-produced chocolate have declined. During the first six months of 2007, Hershey’s earnings dropped to $97 million, compared with $220.4 million in the same period of 2006. Mix in the sharp spike in cocoa-butter prices, and big chocolate makers have found themselves in a jam. Earlier this year, Hershey announced plans to shut down at least three of its 17 plants in the U.S. and lay off thousands of workers.

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