Cocoa prices cross $10,000 per tonne: Bitter-sweet for chocolate lovers?

One of the most severe supply deficits in decades has pushed cocoa prices to an unprecedented level. The futures contract for May 2024 delivery crossed the $10,000 mark on Tuesday, March 26, raising speculations on whether the prices of retail chocolates are set to rise.

After peaking to $10,080 per tonne, the price of cocoa futures marginally moderated on Wednesday, March 27. It was valued at $9,622.00 per tonne in New York at 5:40 am EDT. The price, however, is manifold higher as compared to the year-ago period, when it was hovering around the $2,800-mark.

The surge in cocoa futures rate to the current level was unthinkable till a few months ago, experts pointed out. Apart from the cocoa grown in West Africa, the price of cocoa beans produced in India are also on the uptrend. In the week ending March 22, the price of Indian cocoa beans peaked to ₹650 per kg, reports said, citing vendors. This is nearly 200% up as compared to the price range of ₹200 to ₹50 per kg in the year-ago period.

Why the prices are rising

The price rise is a result of massive supply side shortage in West Africa, which accounts for 80% of the world’s overall cocoa output. The deficit in the region has been triggered by unfavourable weather conditions, felling of trees, low output and spread of crop disease.

According to the International Cocoa Organization, the supply deficit in the 2023-24 season is likely to stand at 374,000 tonnes, a jump of 405% as against a deficit of 74,000 tonnes in the last season.

In Ivory Coast, which accounts for around half of the global cocoa output, a state-controlled processor has stopped buying beans, reports said. Similarly, in Ghana, where the second highest amount of cocoa is produced, a number of bean processors paused production in recent months citing the low supply, the reports added.

In India, the hike in cocoa beans rate has been triggered by the global shortage of cocoa, with producers looking at increased exports to shore up their profits.

The global prices may further come under pressure if the European Union’s proposed new rules related to the sale of cocoa are implemented across the continent. As per the norms, cocoa products would not be imported from countries where forest is cleared for its production.

The rules could hit major producers like Ivory Coast and Ghana. The two countries lost 94% and 80% of their forest cover, respectively, for the expansion of cocoa production in the last 60 years, as per the World Economic Forum.

How consumers may get affected

The rise in global cocoa prices may turn out to be a bitter development for chocolate lovers, as the International Cocoa Organization says that either the retail rates will rise or the size of packages will shrink.

Paul Joules, a commodities analyst at Rabobank, told CNBC that the major chocolate players are well-hedged as compared to last year. Accordingly, they are unlikely to pass on the burden immediately to the end-consumers, he said, but added that the industry’s capacity to absorb the price surge is limited.

In the near-term, what consumers may face is “shrinkflation” – the volume of product turning smaller instead of the rate going up – in the form of smaller chocolate bars, Joules added.

According to analysts, the first set of retail price increases may be reported in the dark chocolates segment, as they require a high cocoa content for production.

Consumers could begin feeling the brunt by as early as Easter – a Christian observance on March 31, Wells Fargo’s Agri-Food Institute’s sector manager David Branch told a news channel.