A Chocolate Covered Crossroad

What’s At the Root of Rising Chocolate Prices?

Demand for chocolate is increasing and supply appears vulnerable. With both sugar and cocoa in short supply, sourcing ingredients for chocolate is getting more difficult and purchasing prices keep rising.

Cocoa from Africa

Until recently, cocoa was one of four commodities still trading below the price peaks of the 1970s. Market prices are currently 65% higher than they were last year. Normally, stocks act as a buffer for commodity price swings, because they reflect supply that has been set aside for the year ahead. A rising trading price signals supply frailty.

Conseil Du Café, the largest cocoa supplier, confirmed this frailty when they halted all cocoa exports for the 2024-25 harvest season. It’s a jarring reality for cocoa brokers working to secure the coveted ingredient found in holiday treats, lunchbox snacks and many a breakfast bar across the globe.

The Root of The Cocoa Issue

Old trees are to blame. The Ivory Coast, Ghana, Cameroon, and Nigeria grow 75% of the world’s cocoa trees, with the Ivory Coast alone accounting for over ? of those trees. These regions are ideal for cultivating cocoa trees, something politicians realized nearly three decades ago when they invested in the initial planting of millions of trees.?

Since then, the growing process has relied on favorable climates and willing workers.? But, 25+ years is a long time for a tree to produce in abundance and many of the cocoa trees are worn out. They've become less resilient against changing weather patterns; too much or too little rain. The last three years have proven that aged trees produce less. Every year more cocoa trees are claimed by diseases brought on by rains or drought.?

Community Grown

For a commodity crop, cocoa is unusual. Unlike virtually every other commodity, the large cocoa farms in Africa have never been commercially run. Instead, much of the market relies on community efforts. Farmers seeking better work opportunities 25 years ago jumped at the chance to grow cocoa. With the industry largely consolidated to this region of the world, farmers were able to take advantage of an earning opportunity.?

Money has always been invested in other points on the cocoa supply chain. Splitting, fermenting, drying, winnowing, roasting, and grinding have received additional financial and technological support. Little has been done at the cultivating and harvesting stage to safeguard the supply. The current situation is forcing a closer examination of tree and soil health.

To compound the situation further, all of these African nations have had difficulty securing fertilizers and pesticides in recent years; things that could prolong the productivity of the aging trees. As a result soil is depleted and trees are susceptible to infestations.

Cocoa Contracts in Jeopardy

While the Ivory Coast is still working to understand the production breakdown, supply continues to dwindle and demand is at an all time high. Producers are anticipating a 300,000 to 500,000 ton deficit in the next year. The situation has brought a stop to all exports out of the Ivory Coast as Conseil Du Café braces for a continued drop in production.

Prior to the halt, market prices jumped to $5,500 per metric ton, more than doubling its purchase price last year of $2,500. And for a moment, buyers were hesitant to purchase at such high prices. Can the world go without chocolate? It seems that we can’t just yet. The available cocoa was purchased. Though the Ivory Coast appears to be playing it safe, as it guards what supply it has left by not offering more contracts. And in the meantime, buyers are turning to other regions of the world in search of the commodity.

Sugar Shortages

Sugar is produced all over the world, however Brazil and Thailand export more than other producing countries. Brazil’s production was up this year as sugarcane farmers found it more profitable to grow crops for human consumption rather than biofuel.? The scenario boded well for market prices in the coming year. However, Thailand, in contrast, had one of its worst sugarcane harvests this year. A severe drought was enough to drove prices up 18%.

A South American Solution?

African cocoa farmers and Thailand's sugarcane farmers are surely mourning the lost opportunity of the current price peaks, but the market is wide open for South American growers.

Brazil, Columbia and Ecuador appear to be perfectly positioned to take advantage of the supply imbalance. It’s taken nearly 40 years for these regions of the world to rebuild their cocoa crops after a fungus destroyed millions of trees. Investment in reforestation, more efficient irrigation processes and cultivation technology have revived farms. These countries have invested in cultivation first. And their efforts have built back relationships with the EU which has strict regulations on imports from deforested regions.

Brazil also holds an ideal position for the world’s sugar cane market. Global buyers will no doubt be looking to Brazil as well as India and the EU to secure supply.

Projected harvests in these countries could fill the deficit gap left by African cocoa farms and Thailand's sugar cane fields. The question is- how much will these commodities cost if the playing field shrinks? And how greatly will that impact the price of chocolate?

American Economic Impact

Hershey has already announced that they will be making significant changes to the company in light of the cocoa crisis. Changes could include anything from recipe changes to smaller candy bar sizes if the situation escalates and cocoa becomes harder to get. Doing so would help them keep their costs down and in turn save them from increasing consumer prices. It’s not ideal, but it's a reality that the company must consider if there are no cops being sold forward and market competition continues to decrease.

Should You Hoard the Cadbury Eggs?

The Easter holiday claims first place as far as milk chocolate sales go. But don’t worry, your Easter candy is secure; this year! Consumer pockets won’t feel the impact of the cocoa supply shortage until later in the year. Don’t be surprised if you see some marketing shifts around Thanksgiving and Christmas as retailers work to meet customer demands as best they can within the uncertain market.??

Any chocolate you see on shelves was manufactured, purchased and placed in inventory months ago specifically to meet the first quarter of the year demands.?

Originally Posted on Stratagerm's Blog on March 22, 2024.