Chocolate Shock: Why Cocoa Prices Are Skyrocketing and How It Affects Your Industry
In recent years, the price of cocoa has skyrocketed, triggering a series of reactions across global markets and the chocolate industry. This dramatic increase, far from being merely economic, presents significant challenges to the economic stability of cocoa-producing nations, agri-food industries, manufacturers, and the enjoyment of chocolate consumers worldwide. To grasp this phenomenon and understand “Why are cocoa prices rising? What it means for your industries”, it is crucial to identify the reasons behind this surge, understand its potential repercussions at various levels of the supply chain, and take measures to safeguard the future of this essential and beloved global industry.
Cocoa Production: Key Figures and Leading Producers
The “Bean Belt”
The cocoa bean, also known as cocoa, is a fatty seed dried and fully fermented from Theobroma cacao, from which cocoa solids and butter are extracted. Cocoa beans are the essential ingredient in chocolate and cocoa-based products. These products are used in chocolates and in a wide range of food items. Cocoa is a delicate crop that thrives only within a narrow band of 10 to 20 degrees around the equator, known as the “Bean Belt.” In this region, temperatures are high, humidity is intense, rainfall is consistent, and shade is prevalent. (Source: Cococochocolatiers.com)
Cocoa producers
During the last cocoa season, approximately 4.9 million tons of cocoa were produced globally, with 70% coming from four West African countries: Côte d’Ivoire, Ghana, Cameroon, and Nigeria. Côte d’Ivoire and Ghana are by far the two largest cocoa producers, accounting for over 50% of global production. In 2021, Côte d’Ivoire alone produced 2.1 million tons of cocoa beans and is home to approximately one million farmers who supply cocoa to major companies such as Nestlé, Mars, and Hershey. (Source: Statista)
Global cocoa production is expected to reach over 4.5 million tons during the 2024 agricultural campaign.
In recent years, cocoa prices have continuously risen, usually around 2000-3000$ per ton, it has experienced a significant surge in 2023, surpassing $10,000 per ton in New York March 2024. (Source: CNBC and The New York Times).
Barriers to production
Unlike some crops, cocoa production is highly geographically concentrated, meaning a significant portion of the global supply is grown in a handful of regions. This makes the cultivation and supply chain more vulnerable to disruptions. In recent years, these cocoa-producing countries located in West Africa have faced major challenges such as climate change, plant diseases, and local economic difficulties. These factors have decreased production and increased cultivation costs, thereby contributing to a more limited supply of cocoa in the global market.
Harvesting conditions
In addition to climate changes, cocoa harvesting is primarily done by hand, a labor-intensive and demanding process. This manual method incurs high labor costs, especially in cocoa-growing regions. Farmers must pay workers to perform this crucial task, which diminishes their profit margins. Additionally, cocoa farmers face economic pressure because prices are often set through negotiations with major chocolate companies. The high cost of manual labor can lower profits, causing some farmers to switch to more profitable crops, which further reduces cocoa production.
Challenges of Fairtrade certification
Fairtrade certification is essential for ensuring fair working conditions and sustainable farming practices on cocoa plantations. However, several challenges complicate its implementation:
Administrative Complexity and High Costs: Acquiring and maintaining Fairtrade certification involves intricate administrative procedures and significant costs. These additional financial burdens can be particularly challenging for small farms, limiting their ability to invest in improved farming practices and enhanced productivity.
Restricted Market Access and Premium Prices: While Fairtrade certification can offer higher cocoa prices, not all producers can benefit due to administrative and financial barriers. This disparity can create income inequalities and discourage some farmers from seeking certification, potentially undermining efforts to promote sustainable practices.
Illegal Practices
Furthermore, the Coffee and Cocoa Council (CCC) of Côte d’Ivoire has taken stringent measures by suspending several cooperatives suspected of illegally hoarding 60,000 metric tons of cocoa beans to speculate on price increases. This action underscores the increasing tensions regarding cocoa market availability and transparency. (Source: Reuters.com)
Impacts on the Cocoa Market
Prices rising 10 000$ per ton in New York
The growth of cocoa bean crops has suffered in recent years, raising concerns about future shortages. Recent data shows a significant drop in the main harvest arrivals in Côte d’Ivoire for the current season. Volumes have decreased by 29% compared to the previous year, falling from 2.03 million metric tons to 1.4 million metric tons. (Source: ICCO.org)
This decline plays a crucial role in cocoa price fluctuations, as a decrease in supply leads to price increases. A few major companies, often referred to as “Big Chocolate”, dominate the global cocoa trade and processing, controlling most chocolate brands. For these large corporations, rising cocoa prices typically spell trouble, as it may lead to reduced chocolate and cocoa consumption.
According to data from the International Cocoa Organization (ICCO), cocoa prices have risen by over 60% in the past five years, increasing from around $2,000 per ton in 2019 to over $3,200 per ton in 2023. In March of this year, cocoa prices briefly exceeded $10,000 per ton in New York for the first time, more than triple the price from a year ago. (Source: New York Times)
Big Chocolate players adaptations Strategies
The chocolate industry in the United States, generating billions of dollars in annual revenue, is directly impacted by cocoa price inflation. Major international chocolate companies are adjusting their selling prices to reflect the rising costs of raw materials, while small artisanal businesses may need to reduce profit margins or absorb some of the additional costs to stay competitive.
Consumers impacts
For consumers, this translates into higher prices for a range of chocolate products, from bars and candies to hot beverages. According to the U.S. Bureau of Labor Statistics, candy prices, including chocolate, increased by 3.8% over the past year, significantly outpacing the average consumer price increase. This could potentially dampen consumer demand. Companies will need to carefully manage chocolate demand elasticity, as consumers may be unwilling to accept the necessary price hikes to compensate for the significant increase in cocoa costs. Since surpassing $10,000 per ton in New York, the global cocoa market has experienced a tumultuous period marked by a sharp decline followed by relative stabilization. Nonetheless, market fundamentals remain fragile, with limited cocoa bean supply and ongoing uncertainty about the upcoming harvest. (Source: lemonde.fr)
How to adapt?
Cocoa Alternatives
To regain market share, some manufacturers are innovating by offering recipes that require less cocoa, such as chocolate bars with a higher proportion of fruits and nuts. Others are exploring cocoa alternatives; for example, Planet A Foods, which uses oats and sunflower seeds, recently closed a $15.4 million Series A funding round, bringing the company’s total funding to over $43 million. The company warns that “Chocolate will become more expensive than caviar unless drastic, tech-driven steps are taken”. (Source:Tech.eu)
Another example is Cargill, which has announced a new partnership with Voyage Foods to produce cocoa-free alternatives to cocoa-based products and nut spreads. (Source: foodnavigator.com)
Some companies choose not to raise prices for fear of deterring customers. Instead, they maintain stable prices by subtly reducing product sizes, a practice known as “shrinkflation”. For instance, manufacturers may make candy bars in multipacks smaller than those sold individually, or they might alter product shapes without changing the weight. The food and beverage industries primarily use shrinkflation as a strategy to covertly boost profit margins by reducing package sizes while keeping prices the same. Among items commonly affected by shrinkflation, chocolate tops the list (50%), followed by chips (40%) and biscuits (38%) (Source: today.com).
PastryStar, Clean Label and Non-GMO ingredients
For ingredient manufacturers like PastryStar, the current rise in cocoa prices poses significant challenges. Companies are reassessing their strategies for sourcing raw materials, formulating products, and adjusting sales approaches to remain competitive. “Cocoa is obviously a huge part of the baking industry. With the rising costs and unknown future of the crop, bakeries may start to look for fruit-based desserts or savory products to add to their case. In addition to that, people are always looking to feel better about eating desserts in general. With that comes consciously selecting the ingredients in the things you eat and choosing conflict free items, in which cocoa is arguable at best. It feels as if we are perfectly positioned right now to help these companies innovate and expand their offerings outside of cocoa based products” says Jeff, Salesperson at PastryStar.
PastryStar Products
We are supporting our clients through this evolving landscape. Our dedication to innovation allows us to assist businesses in expanding their product lines beyond cocoa-based products. Discover our range of products and find out how we can help you craft exceptional desserts and baked goods that meet today’s demands. At PastryStar, we offer an extensive array of products designed to meet the diverse needs of the baking and culinary industries.
Our Fillings and Jams provide rich, flavorful options to enhance any pastry or dessert, from classic fruit preserves to innovative combinations. Our Flavors and Pastes are crafted to deliver bold, consistent tastes that can transform your recipes and create unforgettable experiences. Moreover, for those seeking a glossy finish or a touch of elegance, our Glazes, Ganaches, and Fondants offer versatile solutions that elevate both the appearance and flavor of your creations. Our Pastry Mixes & Bases simplify the baking process, delivering high-quality results with ease and efficiency. Also, we provide a comprehensive range of Bakery Ingredients & Additives to support various baking needs, from improving texture to enhancing flavor profiles. Additionally, our Savory Creations bring a new dimension to your offerings with products designed for those who prefer savory delights. Contact us to request samples and discover how PastryStar can help you innovate and meet the evolving demands of today’s market!
What to expect next?
As environmental and economic pressures on cocoa production persist, it is likely that chocolate prices will continue to rise in the foreseeable future. Consumers and chocolate companies in the United States will need to adapt to this new economic reality by seeking cost management strategies and exploring alternatives to conventional cocoa. “Some large customers are asking to fix the pricing for the chocolate products for a certain amount of time, so they are not too much impacted by the price fluctuations. Also, everybody is aware of the situation and expects to see price hikes soon”, Eric, Salespeople at PastryStar. While fixed pricing agreements can offer stability and certainty in the short term, they also introduce financial risks and constraints that manufacturers need to carefully consider and manage.
To conclude, Paul, Salespeople at PastryStar says “I believe the cocoa market has been undervalued for an extended period. The recent spike in cocoa prices represents a long-awaited market correction, addressing longstanding disparities in the industry”. As cocoa prices continue to fluctuate and climate challenges persist, the chocolate industry finds itself in a period of reflection and adaptation. Ultimately, the dramatic rise in cocoa prices is more than just an economic fluctuation; it serves as an urgent reminder of the environmental and economic challenges facing producers and consumers of chocolate worldwide.
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