The main cocoa producers of West Africa include Côte d’Ivoire, Ghana, Nigeria, and Cameroon, and together account for around 70% of the world’s supply. The region has experienced heavier-than-usual rainfall during the past three to six months, putting its cocoa crops at risk of significant losses.
To thrive, cocoa requires consistent rainfall with periods of intermittent sun exposure. The high volume and rainfall intensity led to widespread droppage of the flowers that turn into cocoa pods after 22 weeks. Further, it has accelerated the spread of a fungal disease called black pod which rots developed cocoa pods and destroyed one-tenth of Ghana’s last cocoa harvest.
To compound the weather impacts, high inflation in the region has created a cash crisis in which cocoa suppliers are unable to access affordable fertilizers and pesticides and cannot pay for laborers and farmers. This comes as harvest season has just begun, with the main crop expected sometime between October and March. With the crop damages inflicted by the rains and the outbreak of disease, and the potential labor shortages due to non-payment, the global supply of cocoa is at considerable risk. Manufacturers of chocolate and confectionary products, reliant on cocoa inputs, have already begun raising consumer pricing due to the sourcing challenges.
Poor growing conditions in West Africa threaten cocoa production
From March to October, West Africa experiences its primary cocoa growing season, followed by the harvest season from November to February. The recent growing season in the Ivory Coast, the largest cocoa-producing country, was the wettest so far this century. The impressive rainfall amounts surpassed the levels observed in the second and third wettest seasons of the past two decades, which occurred in 2014 and 2010. Notably, this season witnessed early and sustained anomalous wetness, posing an increased risk of mold and diseases throughout, thereby affecting both the quality and quantity of cocoa production.
Supply disruptions prompt cocoa price increases for end-users, enabling new competition
Amid the production disruptions in the world’s top cocoa-producing region, a third-consecutive global cocoa deficit is expected. In the 2022/23 season, there was a recorded deficit of 146,000 metric tons, which is expected to be surpassed this season given the worsening conditions. Amid these concerns, cocoa trading prices have surged to 46-year highs. On the International Exchange in London, cocoa futures hit a peak of £3,155 ($3,919; €3,609) per metric ton, the highest price since cocoa futures started trading there in 1920. While in New York, cocoa futures jumped 2.5% to $3,786 (€3,491) per metric ton, the highest for a contract since 1979.
Due to general inflation trends, consumers in Europe and the U.S. have already seen price increases of 13% and 20%, respectively, for chocolate products over the last two years. While demand for chocolate has held strong in top chocolate-consuming countries amid the constant price increases of recent years, additional pressure from global sugar shortages has affected the industry this year.
Manufacturers Hershey and Mondelez have already reported price increases at the consumer level for some of their products to offset the inflated costs of production. For both companies, price increases have been met with declines in chocolate sales volumes and growth forecasts. Even in Switzerland, the top country for chocolate consumption per capita, consumer purchasing has declined. The new wave of challenges to cocoa production is expected to prompt unprecedented price hikes, and with them, an uptick in private label competition for consumer spending.
As chocolate and confectionary products are largely considered a treat, rather than a necessity like other food products, private label competition has historically been low. However, the unprecedented cocoa price hikes experienced this year have paved the way for lower-cost, private chocolate labels to penetrate the market and attract new consumer interest.
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