Cocoa, a key ingredient in many products, goes beyond chocolate. It's used in food, drinks, medicine, and even beauty products. Cocoa butter adds richness to treats and softens skin, while theobromine has stimulating properties used in medicine. But despite its widespread use, cocoa prices face challenges that threaten affordability and stability. Cocoa futures prices have undergone significant fluctuations, starting from a gradual decline until June 2020, reaching a low point of $2,186 per metric ton. From July 2020 to January 2021, the price showed moderate volatility. However, from February 2021, there was a steady increase, reaching $11,430 by April 2024.
While the COVID-19 pandemic initially dampened demand, leading to reduced production investment, a post-pandemic surge in demand coincided with disruptions caused by the Russia-Ukraine war. This war not only heightened global economic uncertainty but also significantly impacted fertilizer supplies, pushing their prices upwards.
West Africa, responsible for roughly 75% of global cocoa production, bore the brunt of these factors. Many cocoa farmers in the region, particularly those in Ivory Coast, Ghana, Cameroon, and Nigeria, faced the dilemma of rising fertilizer costs coupled with existing drought conditions. This limited their ability to invest in essential crop health measures, ultimately impacting cocoa yields.
The situation is particularly concerning due to a projected decline in global cocoa supply. According to ICCO, compared to the 2022/23 season, supply is anticipated to drop by almost 11%, reaching 4.449 million tonnes. While demand is also expected to decrease slightly, by around 5% to 4.779 million tonnes, the supply shortfall is a significant worry.
Further complicating the situation is the looming threat of El Niño, a major weather pattern forecast to bring drier conditions to West Africa. Coming after a year of depressed harvests due to drought and fertilizer challenges, El Niño could significantly exacerbate the situation. A potential decrease in cocoa production due to El Niño would likely create a tighter global supply, leading to further price hikes.
The recent decline in cocoa production has had significant repercussions across various consumer products, creating a domino effect that impacts everyone involved in the cocoa industry:
Livelihood of Farmers: The decline in cocoa production directly affects the livelihood of farmers in West Africa. Factors such as environmental challenges (including the El Niño weather phenomenon), economic cycles in cocoa farming, and lack of fair compensation contribute to the decline in production. In response, the Ghana Cocoa Board (Cocobod) secured a World Bank loan of US$200 million to rehabilitate disease-affected plantations, aiming to replace afflicted cocoa trees and support farmers.
Local Processing Facilities: Major African processing facilities in Côte d’Ivoire and Ghana have either ceased operations or reduced their processing capacity due to the inability to purchase sufficient beans. This reduction in local processing could further impact chocolate prices globally.
Consumer Behavior: Across all food products, a one percent increase in price typically leads to a decrease in sales volumes. For example, in Germany, a price increase results in a sales volume decrease of 0.94%, while in France, it’s 0.57%. As chocolate prices rise, consumer behavior may shift, affecting overall demand.
Sustainability Efforts: Efforts to make the cocoa sector more sustainable and resilient are ongoing. Voluntary Sustainability Standards (VSS)-compliant production has grown but slowed down recently. Addressing sustainability challenges, including climate change, remains crucial.
The coming months will be critical for the cocoa industry. Addressing the supply chain disruptions, supporting West African farmers, and mitigating the impact of El Niño are crucial steps to ensure the availability and affordability of this beloved ingredient for consumers worldwide.
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