Cocoa Prices are Increasing - What Does This Mean?

Global cocoa prices have been on the rise in recent years, impacting various industries that rely on this key ingredient. In this blog post, we will delve into the factors contributing to this increase, what to expect in the future, and how businesses (and consumers) can navigate these changes.

What is Driving the Increase in Cocoa Prices?

There are several factors at play that have led to the surge in global cocoa prices. One significant factor is the growing demand for chocolate products worldwide, particularly in emerging markets. This increased demand has put pressure on cocoa supplies, leading to higher prices.

As we can see from the graph below, cocoa typically trades between $2000-3000/ton of cocoa beans. If we look closely at this graph, we start to see that the increase in cocoa prices actually started in the first quarter of 2023, climbing from $2500 to $3500 per ton. Cocoa is now trading at $9949/ton, according to the the market report from April 5th, 2024 (seen below). Although experts have predicted that cocoa prices will eventually fall to $6000 per ton, this is still an extremely high price to pay. 

Majority of the world's supply of cocoa (approximately 60%) comes from the Ivory Coast and Ghana. The rest of the global supply of cocoa comes from the Carribbean, Mexico, Ecuador, Peru, Brazil, Indonesia, Nigeria and Cameroon.

The main reasons for cocoa prices have been increasing over the last year:

• Global supply shortage - stemming from lack of investment into cocoa farms, and their farmers. 
• Climate Change - recent flooding in the Ivory Coast has caused poor growing conditions for cocoa plants and created the perfect environment for root rot to occur
• Root rot has now spread to farms in the Caribbean, affecting crop yields and tree health
• Lower Yields - Over the 2023/2024 growing season, total yield produced by crops in West Africa were 11% lower than in 2022. 

Majority of the cocoa produced for commercial chocolate companies comes from small farms who struggle to make a living wage and support their families. The funds they receive aren't large enough to cover reinvestment and growth into the farms they have. As a result, the trees on these farms get older or exposed to disease and aren't easily replaced with new trees, reducing the production yield. 

How will these prices impact consumers?

As the demand for chocolate continues to grow and climate change poses challenges to cocoa production, it is likely that cocoa prices will remain elevated in the coming years. When the cost of raw materials (cocoa and sugar) increase, so does the cost of the end product (the box of chocolates or chocolate bar you purchase).

There are 4 ways you'll see companies pivot:

• Increase prices - to compensate for the increased food cost caused by reasons stated above
• Make smaller packages (shrinkflation) - reducing the size of the product while maintaining the original price, to cover the increased food cost.
• Removing the most expensive items off the menu - items that used coloured cocoa butter, solid chocolate or are highly labour intensive (bonbons), may be removed altogether from the menu in an attempt to cut costs. 
• Manufacturers will start to remove certain ingredients (ex. cocoa butter) from their products, compromising quality in an attempt to reduce costs.

Managing the Impact of Rising Cocoa Prices

To mitigate the effects of increasing cocoa prices, manufacturers should explore options such as diversifying their cocoa sources, investing in sustainable farming practices, and hedging against price volatility through futures contracts. Let's take a look at what Valrhona has been doing to prepare for this. 

We purchase our chocolate from Valrhona, which owns 0.15% of the global production. We are proud to purchase our couverture from Valrhona because "Valrhona is a downstream operator which has chosen to purchase the vast majority (94%) of its cocoa from producers grouped into cooperatives and associations." This means that Valrhona is paying their growers a living wage, reinvesting in the farms and supporting the community through building schools so children aren't forced into the workforce. 

Valrhona has 3 key objectives as part of their Fair Pricing Policy:

1. Improve cocoa farmers’ income so that they can enjoy what is agreed to be a decent living by 2030.
2. Stop sourcing cocoa from deforested areas by 2025.
3. Speed up action against child labor in French supply chains by 2025

In addition, Valrhona has worked with 6,951 producers globally for cocoa bean harvest, meaning the cocoa in production is 100% traceable to the plantation. Valrhona pays 34% more for its cocoa beans, than the minimum guarenteed price by the Ivory Coast. This means that farmers are paid a fair wage and can support their families while taking care of their farms. 

Chocolate manufacturers globally need to recognize that the ways they have been operating are no longer acceptable. It's time to pay attention to climate change, pay farmers their fair wages and re-invest into the farms with new crops.