2024-03-04 22:02:41
As we are less than a month away from Easter, the thoughts of sweet-loving consumers in both Europe and North America are beginning to turn to chocolate.
The UK alone will see tens of millions of milk chocolate eggs sold, but prices are expected to be higher this year than any year ever, unrelated to inflationary pressures on the market.
The issue, in fact, is related to the non-stop increases in cocoa prices in recent months, which are behind the increase in costs. Cocoa bean prices have risen to their highest levels ever, and cocoa futures prices in New York have more than doubled compared to the same period last year. Cocoa futures were trading in London, a week ago, at record high levels of £5,827 per ton, while on the same day last year they were recording £1,968 per ton.
The high prices are partly due to limited supplies. Bad weather has affected crops in both Ivory Coast and Ghana, which together produce two-thirds of the world’s cocoa beans.
El Niño, a sea temperature-related phenomenon that occurs every three to five years, returned last year, initially bringing unseasonal heavy rains to the region, followed by dry heat. This resulted in a global harvest 11% lower than last year’s season, according to forecasts published by the International Cocoa Organization. Analysts warn that chocolate manufacturers and brands will pass on the higher costs to consumers, if they have not already done so.
Paul Jules, cocoa analyst at Rabobank, believes brands will limit their losses by reducing chocolate bar sizes and by raising prices. Jules suggested that chocolate bars filled with fruit or nuts would likely replace regular chocolate bars, or alternatives that were less dense in chocolate.
This situation is unlikely to be temporary. While the El Niño phenomenon has sent cocoa prices soaring and speculators have exacerbated the issue by rushing into futures contracts, deep-rooted structural issues are putting pressure on production. Between climate change and chronic underinvestment, these problems will not be solved simply by changing the seasons.
Douglas Lamont, CEO of Tony’s Chocolonly, a sustainable chocolate brand that pays farmers a living premium on top of the price of the crop, says the existing model needs to be modified, otherwise the situation will only go in one direction: less abundant harvests. For cocoa farmers like Isifo Isaka, watching market gains is confusing. Cocoa futures were trading in New York, a week ago, at $6,648 per ton, but it reported obtaining $1,700 per ton.
Isaka’s yields, which he produces from his 11 acres of land in Bibiani Anhuiaso Bekawi locality in northwestern Ghana, have dwindled over the past few years, affected by increasing input costs, bad weather and disease.
Isaka warned that the crop of the second largest producing country in the world could halve within five years if caution is not taken. Many years of heavy cocoa production, especially in neighboring Ivory Coast, which produces nearly half the global supply, has kept prices generally low.
This may be good news for consumers in the West, but it means that cash-strapped farmers will not be able to invest in their cocoa farms. The majority of them have not planted new trees since the early 2000s, and cannot afford to use fertilizers or pesticides.
As trees age, they are less productive, and more susceptible to disease and adverse weather conditions.
Last year brought both, as cocoa bloat virus, transmitted by mealybugs, spread on cocoa farms across the region. The only treatment is to completely uproot the trees. Moreover, black pod disease, a fungal infection that causes cocoa beans to rot, has spread in the humidity caused by last summer’s rains.
“The trees are at the end of their lives,” said Nana Arufi Kuram, chief of the Noamakrom district in Twifo Ati-Morkwa district. The province includes 3,000 acres of land cultivated with cocoa, mostly worked by tenant farmers. Some of these trees were planted when his grandfather owned the land, and his father after him, in the sixties and seventies of the last century, and he reported that the youngest of these trees was 30 years old.
Since then, humid weather conditions have given way to hot drought, bringing other problems for sensitive cocoa trees. He added: “The trees are under great pressure and the leaves turn yellow,” explaining that this reduces the size of the crops. Coram blames climate change for this. He explained: “The rain is falling outside of the season now, and the dry seasons are hotter than they were before.”
Coram pointed out that new varieties of seeds are more resilient in the face of such changes, but cocoa farmers do not have the necessary money to enable them to adapt, as the momentum of climate change intensifies. Many small farmers are abandoning cocoa farming in Ghana and replacing it with easier crops, such as cassava.
For their part, the governments of Ivory Coast and Ghana have taken measures aimed at protecting farmers from ever-lower prices. The Coffee and Cocoa Board of Ivory Coast and the Cocoa Board of Ghana, which set prices based on the average of the previous season, formed an export bloc in 2019 similar to the OPEC oil cartel.
The bloc announced the implementation of what it called “living income disparity,” which is a premium calculated in farm prices of $400 per ton, in addition to the price of futures contracts.
At the same time, the world’s appetite for chocolate continues to rise. Demand for cocoa has more than doubled in recent decades, resulting in a large deficit. The International Cocoa Organization expects demand to exceed supply of the commodity by more than 370,000 tons this year. The deficit would be large if it changed the ratio of global stocks to total consumption. “It does affect the ratio,” said Nico Debenham, managing director at Sustainability Solutions, which advises companies.
The deficit currently stands at 31.4%, which caused panic among everyone, which led commercial entities, according to Debenham, to start buying more and more, pushing prices to higher levels. Debenham previously served as head of sustainability at Barry Callebaut, the world’s largest chocolate manufacturer. Small businesses will have difficulty keeping up, he said, adding: “These companies need twice as much money to do the same amount of business.”
Even large entities are feeling the sting of the matter, as Barry Callebaut announced last week its intention to reduce 18% of its workforce. As for Hershey’s, it announced a plan to reduce 5% of its jobs, after announcing a decline in profits on an annual basis by 11.5% in the fourth quarter of 2023.
A growing number of voices argue that this situation represents an opportunity for change. Lamont believes that this is “an excellent moment for the industry to commit to paying more to farmers, because consumer prices have already risen.” However, Lamont expressed his fear that cocoa prices will eventually fall, because they will easily pocket the profits.
The danger then is that this will put the world on a path where chocolate is a luxury good, and farmers in West Africa will have a hard time surviving.
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