Escalating cocoa prices have led to surging prices of cocoa products and contributed to a limited supply, according to Casey Sprake, an investment analyst at Anchor Capital.
The cocoa industry plays a pivotal role in the economy of numerous states in the West African region.
These countries include: the Ivory Coast, Ghana, and Nigeria.
Sprake said that the cocoa industry is experiencing a number of challenges that are affecting its supply. She noted that issues such as ageing trees, pests, diseases, and environmental concerns posed a significant challenge to cocoa production.
At the same time, she added that chocolate consumption continues to rise globally, driven by increasing urbanisation, higher disposable incomes, and a growing consumer awareness of premium chocolate products.
“Emerging markets in Asia, particularly China and India, are witnessing a chocolate consumption surge, presenting new industry growth opportunities. Consequently, sustainability has become a critical concern within the cocoa industry, with growing pressure to address deforestation, child labour, and low farmer incomes,” Sprake said.
She indicted that West Africa is now home to the largest cocoa-producing countries worldwide and the region hit 3.9 million tonnes of production in 2022.
“Côte d’Ivoire remains the world’s leading cocoa producer, boasting an output of 2.2 million tonnes in 2022, representing one-third of total global cocoa production,” according to Sprake’s research.
The cocoa trade in Côte d’Ivoire and West Africa is controversial as “cocoa farmers in the region often receive a meagre 5% share of the retail price of a chocolate bar, resulting in an average daily income of just $1.20 (R22.61)”.
A meltdown in the chocolate market
Sprake noted that as we move further into 2024, plummeting supply and surging prices have insinuated somewhat of a meltdown in the chocolate market.
She acknowledged that New York Intercontinental Exchange (ICE) cocoa bean futures prices have jumped about 58% since the start of 2024 and are 143% higher than a year ago. Sprake also said that London ICE cocoa bean futures have also reached record highs in multiple sessions, trading up to 5,620/tonne on March 5.
“Unsurprisingly, the price surges in cocoa bean futures have trickled down to the consumer level. Data from the US indicate that the price of sweets is rising almost three times faster than the broader inflation rate,” she noted.
A report from the International Cocoa Organisation (ICCO) also forewarned that consumers may likely continue to see higher chocolate confectionery prices or a shrinkage in products being implemented.
The impact of bad weather
Michael Odijie, a research associate at University College London (UCL) said this week that there is an actual shortage of cocoa beans and this has led to a near shutdown of processing plants in Côte d'Ivoire and Ghana.
This was confirmed in Reuters whereby four trading sources told the news outlet that the cocoa plants have stopped processing because they cannot afford to buy beans.
"In 20 years, I have never seen a harvest like this," Siaka Sylla, president of a trade cooperative of 1,500 farmers in Divo, southern Ivory Coast, told AFP in February.
"The rain has spoiled our crops," he said.
According to Odijie’s research, the impact of the El Niño weather phenomenon has contributed to problems on farms, such as the swollen shoot virus disease.
“As a result, Ghana has lost harvests from nearly 500,000 hectares of land in recent years,” he said.
“The global market for chocolate and chocolate products is on the rise. It is projected to grow faster than 4% annually over the next few years. This growing demand for cocoa underscores the urgency in addressing the intertwined issues that relate to the industry's sustainability,” Odijie said in editorial on Salon.com
What is the bottom line?
Sprake said that the global cocoa industry faces various challenges and opportunities.
Like Odijie, she noted that the industry is facing a massive sustainability issue and this is related to the evolving consumption of the cocoa industry and the climate issues facing the sector.
She does argue that while significant progress has been made in addressing sustainability concerns, more work needs to be done to create a more equitable and resilient cocoa supply chain.
“By prioritising sustainability, fostering innovation, and promoting responsible consumption, the cocoa industry can continue to thrive, while safeguarding the wellbeing of communities and the environment.
“The recent supply constraints and resultant heightened prices simply serve to illustrate that the future of the global cocoa industry hinges on addressing sustainability concerns, while meeting the growing demand for cocoa products,” Sprake added.
She called for collaboration among stakeholders, including governments, corporations, non-governmental organisations, and local communities, emphasising that this is essential to drive positive change throughout the cocoa supply chain.
“Investments in research and development, coupled with innovative solutions, will be instrumental in ensuring the long-term viability and resilience of the industry,” Sprake concluded.
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