Ridhi
Cocoa prices remain at record high levels, surpassing the $10,000 (€9,235) mark for the very first time. At the beginning of the year, cocoa was trading below $4,200 per ton, meaning the cost of the key ingredient for chocolate production had nearly doubled. It’s more expensive than copper, whose market price is $8,700 per ton. Easter is just around the corner, and one of the most beloved holidays of the year is celebrated with chocolate. Prices are expected to be higher than ever, raising concerns about the subsequent affordability and accessibility of chocolate. Is the “chocopocalypse” looming? For now, guilt-free indulgence is available and, to a certain extent, affordable, yet that isn’t something that should be taken for granted.
This Situation Is Aggravated by the 8% Decrease in Cocoa Supply for the 2023-24 Season
A shortage of cocoa beans has led to a temporary cessation of the activity of processing plants in the Ivory Coast and Ghana, the two largest producers of cocoa, responsible for more than 50% of the world’s cocoa. The supply of cocoa is poised to decrease by 8% in the 2023-24 agricultural season on account of supply chain disruptions. Newly planted trees require three to five years to produce cocoa, which translates into the fact that there’s little chance supply will enter a period of calm any time soon. Companies, particularly those that accommodate price-sensitive consumers, can hardly maintain their profit margins due to increasing expenses.
Large corporations such as Nestle, Mondelez, and Hershey’s, to say nothing of local bean-to-bar chocolate manufacturers and companies that make biscuits, are all likely to be affected. The industry is, in all probability, reducing its use of cocoa ingredients (e.g., cocoa and sugar) and dipping into the reserves until new crops arrive. BNP Paribas lowered shares of Hershey’s from an outperform rating to a neutral rating, citing the recent surge in cocoa prices. The implementation of the EU’s new regulation to curb the market impact on global deforestation and forest degradation yields an increase in structural costs, so a significant portion of the cocoa inflation is structural.
Harsh Weather Conditions Have Affected Cocoa Production in West Africa
If you’re looking forward to chocolate this year, this Easter basket could affect your wallet. To be more precise, you can expect an escalation of prices for your favorite treats because of the relentless spike in the cost of cocoa in recent months, which tends to result in increased consumer prices regardless of the level of demand. The dwindling supply is caused by climate change, with global heating leading to more forceful El Niño events. El Niño is the warm phase of the significant phenomenon El Niño-Southern Oscillation and impacts weather all over the world. The global crop is 11% smaller compared to last year’s season.
Cocoa is a delicate, sensitive plant, and the droughts typical of El Niño conditions have decimated crop yields. Dry conditions bring pests and diseases that cause pods to rot in the cacao tree, therefore threatening the livelihood of farmers who already face insurmountable poverty. The heatwave that impacted West Africa in February weakened the cacao trees, damaged by the extreme rainfall in December. If carbon dioxide emissions from fossil fuels aren’t reduced at once and global temperatures keep rising and reach 2 degrees above pre-industrial levels, such heat waves will occur every year.
Deforestation In Cocoa-Producing Regions Carries Severe Environmental and Social Consequences
Farmers are forced to abandon their farms and expand into new areas – it’s the only choice that makes sense from an economic standpoint. The problem is that finding optimal locations is hard, if not impossible, as the continent’s forests are slowly but surely disappearing. According to the experts, it may no longer be possible to grow cocoa in many parts of Africa by 2050 due to expanding agriculture, logging, and charcoal-making. Deforestation engenders diversity loss, soil degradation, and disrupted water cycles, impacting ecosystem functionality. The Ivory Coast is presently testing a cocoa traceability system in an attempt to fight the large-scale destruction of trees, geolocating every cocoa plantation, estimating output, and digitizing payments.
Maybe the biggest problem of all is the lack of fair compensation for sustainable cocoa production. Farmers who sell their produce to local traders and cooperatives must be guaranteed a better wage and also receive a premium when they grow more sustainable cocoa ingredients. Traceability throughout the supply chain is of the essence because it helps increase sustainability and accountability. What consumers increasingly want is a more granular set of claims they can trust. The good news is that, for the last few years, more and more value chain actors like Ofi have been implementing traceability in their operations to create more value for farmers.
Chocolate Makers and Brands Will Most Likely Pass Soaring Costs to Consumers
Cocoa prices have been slowly but surely increasing, while the supply has been diminishing. Chocolate makers and brands don’t exclude the possibility of raising prices to optimize financial health. If they haven’t done so already, many corporations will limit losses by reducing product sizes to offset rising costs and even increase costs, so chocolate fans will have to compromise on quality or taste. It shouldn’t come as a surprise if cocoa bars are replaced by nut and fruit bars or other alternatives. As a matter of fact, there’s been a rise in the use of cocoa butter equivalents, cocoa extenders, and artificial flavors (nature-identical flavoring substances).
All things considered, given where cocoa prices are, chocolate manufacturers and companies that make biscuits will leverage every tool in their arsenal, including pricing, to manage business. A decrease in demand for chocolate is expected as people struggle to purchase basic necessities amid inflation, so chocolate, which is synonymous with indulgence, will become an inaccessible treat. Similar to cocoa, global sugar prices have risen dramatically in recent months, and brands are expected to pass the rising costs onto consumers before Easter. This holiday, indulging in your favorite treats might not be such a good idea.
