The price of cocoa futures for July delivery reached a record high on 19 April 2024, climbing to over USD 12 thousand per metric tonne intraday. Meanwhile, the first psychological threshold of USD 10 thousand was crossed by cocoa at the end of March. However, after the highs in April, the price slumped and stood at around USD 9 300 per metric tonne at the beginning of June. Since the beginning of this year, it has thus seen a sharp increase, gaining almost 170 per cent in six months.

By comparison, the last all-time high, apart from the current one, was reached almost 47 years ago, when the price of the delicacy exceeded the valuation of more than USD 5,000 per tonne. *

Price development of cocoa futures over the last 5 years (Source: Tradingeconomics.com)*

Expensive cocoa equals expensive chocolate

The direct impact of rising cocoa prices will be felt not only by chocolate producers, but ultimately by consumers. As the price of the commodity is steadily rising, most manufacturers such as Lindt & Spruengli and Hershey have already announced adjustments to their product price tags, as around 20 percent of companies' costs are cocoa-related. Since March, we have been paying around 10 per cent more for chocolate treats in the shops, and prices have been rising for the past year. The current trend is confirmed by Circana's US market survey at the end of March, which showed that demand in the US market fell by 1.8 per cent in 13 weeks, while prices for snacks rose by more than 6 per cent. It is essential to note, however, that producers usually buy raw materials well in advance, which means that the current record cocoa prices on the exchange will not be fully reflected in prices for buyers for several months.

Should the confectionery market react to the cocoa price increase as it has done so far and demand remains relatively stable, this will mean that chocolate prices could double by the end of the year. [1] 

The reasons are varied and complex

The main reason for the sharp rise in the price of the crop is the poor harvest and lower supplies from West Africa, particularly Côte d'Ivoire and Ghana, which are the largest producers of the commodity. The countries are plagued by extreme weather changes, with alternating extremely dry, rainy and windy seasons, which make cocoa trees vulnerable to disease. According to FutureBridge technologist Sukanya Naga, pod and tree diseases have caused a 10 per cent drop in yields in 2023. The biggest problem is black pod disease, which reportedly requires the felling of affected trees and the planting of new ones. However, this will not resolve the current situation, as the harvest from the new planting will be 3 to 5 years away.

The problem of deforestation

Deforestation and regulation also play a role in the price increase. According to the World Economic Forum, Ghana has lost 94 per cent and Côte d'Ivoire 80 per cent of its forests to deforestation, with one third of this attributable to cocoa plantations and their expansion. Due to the factors mentioned and the current drive for sustainability, the European Union has put into force an anti-deforestation regulation which stipulates that commodities must be imported from areas free of deforestation. According to thecocoapost.com, smuggling or illegal gold mining in Ghana also has negative impacts. Last but not least, we must not forget the financial aspect, such as the prices set by governments for farmers, who ultimately do not benefit from the current situation and switch to growing other crops, such as rubber, instead. To improve the financial situation of farmers, Nestlé, for example, has decided to invest USD 132 million over the next five years.

The Latin American alternative

The Latin American alternative

An alternative to African cocoa could be the increasing production from Brazil and Ecuador. Ecuador alone could overtake even Ghana, according to the International Cocoa Organisation (ICCO) data on production growth in that country. The last two years have been marked by growth for Ecuadorian production, but the same cannot be said for Ghana. Thanks to investment, a better agricultural environment and suitable growing conditions, both of these South American countries can offer the world market cocoa from sustainable and ethical sources, with a commitment to quality control, which is also in line with the aforementioned EU regulation. This is also how the Colombian chocolate producer Moxe operates, focusing on social responsibility in its production, using beans of indigenous species with their organic processing and producing more nutritious chocolates than the industrially processed products of their competitors.

In conclusion, the rising price of cocoa is changing the face of the industry, which is also affecting consumers. Given the number and complexity of factors involved, the sharp rise in prices underlines the complexity of the global market for this commodity. While the alternatives from Latin America offer hope for future stability, their impact is not immediate, so it is possible that we may see supply shortages in the near future, but also a more expensive raw material that could potentially cause chocolate to become a more 'luxury' commodity again for a period of time.

Olivia Lacenova, principal analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results.

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.