A sharp rise in the price of cocoa in recent months has left lovers of the sweet treat wondering if they should stock up. A tonne of the precious cocoa beans—or ‘brown gold,’ as it is sometimes known—reached $12,000 last month. Last year, a tonne would have cost about a third of that. For much of 2022, the price hovered at just over $2,000 per tonne.
Around four-fifths of the world’s cocoa (the basis of chocolate) is grown in West Africa, particularly Ghana and the Ivory Coast. The rest is made up of states like Indonesia, Ecuador, Brazil, and the Dominican Republic. Normally, they produce enough, but the weather has caused all sorts of problems, that most put down to climate change. Late last year, storms battered West Africa, then heatwaves and drought hit hard, letting a fungus and a virus attack the crop.
Yields are down, and global cocoa demand is not being met. An 8.5% shortfall this year led to 400% price rises on futures markets, with all manner of market turbulence. There were predictable knock-on effects for the industry, exporters from cocoa-producing nations, companies making the finished products, and those consuming it.
Yet, price volatility has also attracted speculative investors who are more usually interested in the oil and gold markets. There is a lot of money involved. This year, the world could spend $63bn on cocoa when it more typically spends around $18bn.
Of the $120bn spent each year on chocolate, the Europeans are the biggest chocoholics, accounting for about half. Gulf states are also in love. Might the affair be about to end?
An industry in trouble
Cocoa cultivation is a long-term business. It needs the right soil and the right climate. It also needs investment. Yet many of the cocoa trees in West Africa are old and increasingly unproductive. In most cases, they are not being replaced.
Part of the reason is that farmers there who get paid a set price by the government say this is no longer enough for them to buy fertilisers and pesticides or invest in new trees. Many are leaving to do other things. If they stay in farming, they often swap their cacao trees for something more lucrative and stable, such as rubber. Some cocoa is being smuggled to neighbouring states with free markets.
As a result, many cocoa farmers are struggling to fulfil their export contracts. In West Africa, crop yields are down by around a third. The world’s big chocolate manufacturers—such as Lindt, Mondelēz, Nestlé, and Hershey—now worry that high cocoa prices might be here to stay.
Optimists say the change from the El Niño to the La Niña weather systems should bring more rainfall, which should bring down prices. Still, many manufacturers have cut costs and sought alternatives. It comes as the International Cocoa Organisation expected global production to decline by 10.9% this season. Such a decline over four consecutive years has not been seen since the late 1960s, according to the ICO.
Demand stokes demand
Serge Kurdy, a director at Lebanese chocolatier Patchi, describes cocoa price rises this year as “crazy” but said there were also longer-term causes behind the crisis.
“The poor financial returns determined by cocoa-growing countries for large labour have led many farmers to resort to more lucrative farms or professions,” said Kurdy.
“Illegal mining in West Africa, driven by mineral-rich lands, has led to a massive loss of arable land due to deforestation. This has caused the largest cocoa shortage in over six decades, with the world’s cocoa market heading towards a deficit of 300,000-500,000 tonnes in 2024.”
Demand has shot up in part because importers want to stock up, fearing a major shortage in the coming months. This then increases the prices, perpetuating the cycle. With three consecutive years of cocoa shortages and expectations of a fourth, Kurdy says he hopes that soaring prices will encourage growers to rehabilitate many old cocoa trees and better preserve existing ones.
He thinks market forces will eventually help restore the balance of supply and demand, but in the meantime, chocolate manufacturers are raising their prices and cutting costs, such as by reducing their product sizes or cutting the cocoa content.
Demand is unlikely to vanish. Big Arab world importers of chocolate include Egypt, where it is popular with the growing middle class, as well as Saudi Arabia and the United Arab Emirates, where the luxury goods markets remain healthy.
Systemic problems
If the price of cocoa continues to rise, the market for alternatives will strengthen, which in turn would give a boost to campaigners who say cocoa cultivation is tainted by slavery, injustice, the inhumane treatment of farmers, and unfair land exploitation. With consumers increasingly aware of the environmental and social costs of the products they buy, investors are concerned about supplier practices in an industry that typically yields a $100bn annual profit.
The exploitation of workers on cocoa plantations includes child forced labour, with children from poor African families sold to farm owners in Ghana for around $34. The International Labour Organisation estimates that more than two million children work in the cocoa industry, mostly in Ghana and Ivory Coast.
The European Union is introducing laws to protect human rights, prevent child labour, and stop deforestation in cocoa-producing countries, outlawing cocoa from deforested land. This has pushed the premium up further.
As West African farmers sell their cocoa plantations to gold miners, Latin American farmers are planting cacao trees, from which cocoa solids are extracted, in the hope that prices will still be high by the time the trees bear fruit.
Some think the solution cannot be found through the free market, suggesting that minimum prices for cocoa farmers and long-term contracts are the only answer. Whatever the answer, chocolate lovers will hope that their guilty pleasures remain pleasures of the moment, not of the memory.
