The Codex International Standard for Chocolate and Chocolate Products sets out the classifications of products containing chocolate. To be classified as ‘dark chocolate’, the amount of cocoa solids must be over 35 per cent of the product; and for ‘milk chocolate’, it must contain at least 25 per cent cocoa solids. Some popular products, such as Cadbury chocolate products, contain less than 25 per cent cocoa solids and, legally, cannot be called ‘milk chocolate’. These, instead, fall into a category called 'family milk chocolate’ with cocoa solids of between 20-25 per cent. 

 

World cocoa prices 

Covid, the war in Ukraine, weather events, other supply chain disruptions and inflation have caused high levels of volatility in many food commodity markets. The price of many of these commodities has now stabilised near pre-pandemic levels, however cocoa remains an exception. Why is this, and is it expected to continue? 

Several factors contribute to this persistent price increase, primarily rooted in the dynamics of supply and demand in key producing regions. Approximately 80 per cent of global cocoa production comes from just two countries, both located in West Africa – Ghana and Côte d'Ivoire. Any interruptions to supply in this region have a huge effect globally. Any new cocoa plantation takes four to five years for the trees to become productive, so even though there is some expansion in production in South America this will take a number of years to feed through. Therefore, this analysis concentrates on the situation in West Africa. 

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Weather and disease 

As with all agricultural commodities, weather patterns have a large impact on supply. Storms in late 2023, followed by drought and heatwaves in early 2024, have significantly reduced cocoa production in West Africa. These extreme weather conditions have particularly affected small-scale farms, which are common in these regions. 

Such weather events are exacerbating crop diseases like black pod, which causes pod rot, and reduces yield. Other fungal and viral issues are also worsened by weather patterns associated with climate change. 

Structure of industry and rising input costs

The structure of the cocoa industry generally observed in both countries sees a fixed price paid to farmers for their beans. Prices for fertilisers and sprays have risen drastically over the past two to three years but the price the farmer receives for their produce has not risen by the same amount. This means that smallholder farmers cannot afford to purchase the required volume of inputs, nor are they position to invest in new trees. Farmers, therefore, are experiencing lower yields and less production from their crop. 

 

Global demand 

The demand for cocoa continues to rise globally, primarily driven by emerging markets in Asia. High cost has not decreased demand yet, and all forecasts predict that demand will continue to grow with more affluent consumers in Asia willing to pay higher prices for cocoa products. 

 

Outlook

• Short term

The above factors are expected to cause significant production declines in major cocoa-producing nations like Côte d'Ivoire and Ghana due to ongoing disease impacts and insufficient farm gate prices as mentioned above. The International Cocoa Organisation forecasts a 19.6 per cent drop in Côte d'Ivoire’s output and a reduction of 11.31 per cent in Ghana’s production for the 2023/2024 season. 

With this reduction in output there is a 374,000-tonne deficit forecast in the current year versus demand. The anticipated increase in global prices might drive production efforts, but systemic issues like aging trees, access to agricultural inputs and time lag between planting and first harvest limit rapid scalability.  

• Long-term 

The longer-term outlook suggests that prices will continue to experience upward pressure unless significant changes occur in production efficiencies or global demand patterns. Some analysts are forecasting a further 30-40 per cent rise in the price of cocoa by 2029. 

Further, from the end of 2024 companies in the EU will need to be compliant with the EU Deforestation Regulation (EUDR), which, among other conditions, will require proof from producers that cocoa beans are not sourced from deforested land. These requirements will need to be completed by importers and checked by manufacturers and retailers to ensure rules have been adhered to upstream. While protection against deforestation is badly needed, the new EUDR has faced pushback from smallholder farmers and farming organisation and will ultimately add costs to the supply chain. 

 

Advice 

Stephanie Walsh, ifac food business consultant, advises that there are a number of strategies that must be considered by any company facing the above challenges. She explains: “These could include looking at type and duration of contracts in place, adjusting costing models to protect margin and considering possible changes to product offerings. Before deciding on any of these, a companies' sales and market data will need to be interrogated fully to ensure the correct options are utilised.”