Uncategorized » The bitter taste of rising cocoa costs

The bitter taste of rising cocoa costs

The global chocolate industry is grappling with the rising cost of cocoa, driven by climatic adversities in key production regions, which has led to significant supply chain disruptions and increased prices for consumers.

  • The global price of cocoa has doubled this year, reaching a record high of over $10,000 per metric ton in New York.
  • The Ivory Coast, the largest cocoa producer, has experienced a decline in exports by a third in recent months.
  • Net profit margins at The Hershey Company increased from 15.8% in 2022 to 16.7% in 2023.

The confectionary industry is facing a bitter reality as the price of cocoa continues to skyrocket. Chocolate lovers around the world are feeling the pinch as changing climate patterns and supply chain disruptions take a toll on global cocoa supplies.

This has led to a surge in cocoa prices, resulting in major challenges for confectionary companies and cocoa farmers in West Africa, where the majority of the world’s cocoa is produced.

The Cocoa Crisis Unveiled

Climate Change and its Effects on Cocoa Production

One of the primary factors contributing to the rising cost of cocoa is climate change. Cacao trees, which produce cocoa beans, are highly sensitive to changes in weather patterns. The West African countries of Ghana, Ivory Coast, Nigeria, and Cameroon, which collectively account for three-quarters of global cocoa production, have experienced adverse weather conditions in recent years.

Dusty seasonal winds from the Sahara and heavy rainfall have disrupted cocoa production in these regions. The dusty winds block out essential sunlight needed for bean pods to grow, while excessive rainfall has led to the spread of a rotting disease. These climatic challenges have resulted in a significant decline in cocoa yields, leading to a supply shortage and driving up prices on the global market.

Supply Chain Disruptions and the Impact on Cocoa Farmers

The disruption in cocoa production has had a profound impact on cocoa farmers in West Africa. With exports from the Ivory Coast, the world’s top cocoa producer, plummeting by a third in recent months, farmers are struggling to cope with lower yields and rising production costs. The increased cost of fertilizers, coupled with unfavourable exchange rates, has further exacerbated the challenges faced by farmers.

Eloi Gnakomene, a cocoa farmer in Ivory Coast, lamented the poor harvest and the resulting financial strain on farmers. He highlighted the disparity between the rising prices of cocoa and the lack of fruit produced by the cacao trees. This sentiment is echoed by Opanin Kofi Tutu, a cocoa farmer in Ghana, who emphasized the difficulty of survival amidst the production shortfall and escalating costs.

The Impact on Confectionary Giants

Passing on the Cost: Chocolate Price Spike

While cocoa farmers bear the brunt of the cocoa crisis, confectionary companies are not exempt from its effects. Major global players in Europe and the United States, including The Hershey Company and Mondelez International, have been forced to pass on the rising cost of cocoa to consumers.

Net profit margins at The Hershey Company increased from 15.8% in 2022 to 16.7% in 2023, indicating their efforts to offset the impact of higher cocoa prices. Mondelez International, the owner of popular brands like Toblerone and Cadbury, reported a jump in net profit margins from 8.6% in 2022 to 13.8% in 2023. These companies have implemented price hikes on their chocolate products, ensuring that consumers share the burden of the rising cost of cocoa.

Consumer Reactions: Higher Prices and Smaller Portions

The price spike in chocolate has not gone unnoticed by consumers. In the United Kingdom, British consumer research and services company Which? found that popular chocolate Easter eggs and bunnies, such as those from Lindt and Toblerone, cost about 50% more in 2024 compared to previous years. Additionally, some candy eggs were found to be smaller in size.

Consumer groups have reported that promotions and discounts are becoming less prevalent, and chocolate is perceived as less affordable than before. This shift in consumer behavior, coupled with the impact of reduced food benefits for low-income families, has contributed to a decline in chocolate purchases. The National Confectioners Association (NCA) found that while spending on chocolate increased by 5.8% in 2023, actual quantities purchased decreased by 5.4% compared to the previous year.

Managing the Crisis: Strategies Employed by Confectionary Companies

Pricing as a Tool: Raising Chocolate Prices

Confectionary companies are employing various strategies to manage the challenges posed by the rising cost of cocoa. Both The Hershey Company and Mondelez International have raised chocolate prices in response to the soaring cocoa prices. Mondelez International increased chocolate prices by up to 15% in 2023, with plans for additional price hikes to meet their 2024 revenue growth forecasts.

Hershey’s Chairman, President, and CEO, Michele Buck, emphasized the importance of utilizing pricing as a tool to navigate the cocoa crisis. Buck stated that given the current cocoa prices, Hershey will use every available option, including pricing, to manage the business effectively. The pricing strategy adopted by these confectionary giants reflects their commitment to maintaining profitability amidst the challenging market conditions.

Exploring Alternative Solutions: Promoting Sustainable Farming Practices

Recognizing the long-term implications of the cocoa crisis, industry stakeholders are exploring alternative solutions to mitigate the impact. Authorities in cocoa-producing countries, such as Ghana, are promoting education on sustainable farming practices. This includes implementing irrigation systems to mitigate the effects of adverse weather conditions.

Efforts to address climate change and its effects on cocoa production are crucial for the long-term sustainability of the industry. By focusing on innovative farming techniques and fostering collaborations between governments, farmers, and industry players, the confectionary industry can work towards a more resilient cocoa supply chain.

Will chocolate become a luxury good?

The rising cost of cocoa has presented significant challenges for both confectionary companies and cocoa farmers. The impact of climate change on cocoa production, coupled with supply chain disruptions, has led to a sharp increase in cocoa prices. Confectionary giants have responded by implementing price hikes on chocolate products, prompting consumers to pay more for their favourite treats.

Cocoa farmers in West Africa are facing the harsh reality of lower yields and rising production costs, making it increasingly difficult for them to sustain their livelihoods. As the industry grapples with the cocoa crisis, it is crucial for stakeholders to explore sustainable farming practices and collaborate on initiatives that promote the long-term stability of the cocoa supply chain.

The future of chocolate and the confectionary industry as a whole relies on finding innovative solutions, supporting cocoa farmers, and ensuring the availability of this beloved treat for generations to come.

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