The Global Cocoa Market Share Analysis by Mordor Intelligence estimates the cocoa market share in 2024 to be worth USD 17.24 billion and forecasts that it will grow to USD 23.97 billion by 2029.
The significant market growth reflected in the survey wasn’t by chance or luck. The global cocoa industry’s overall profitability has been on this upward trajectory thanks to many of its players consciously implementing measures aimed at improving their production and profit.
For farmers seeking to improve their profitability, this article examines some of the factors that contribute to increased profitability in the cocoa industry. But first, let’s discuss some of the limitations to cocoa profitability globally.
Profitability Limiters in the Cocoa Industry
In many places, large-scale cocoa production and trading is perceived as a lucrative business. But despite that, there are a few hurdles that may stand in the way of profitability for players in the industry.
Depreciating Demand for Cocoa Products.
Cocoa is mostly used in edibles such as chocolates, cocoa powder, cocoa butter, and nibs, and as additives in beverages and baked goods. Cocoa butter is also a popular ingredient in body care products such as body creams, hair treatments, and soap.
Considering its primary use cases, one might think cocoa would have a limitless demand. However, that’s not the case. Consider these instances;
In developing economies, a lack of improvement in consumption per capita due to limited income contributes to a significantly low demand for non-necessity goods or “nice to have” commodities. Cocoa products such as chocolates and cocoa powder belong to this category. While they’re consumables, they are not essentials. Low-income earners see them as luxuries, and spending on them is generally considered frivolous. In essence, the deteriorating internal economies of low-income individuals in developing economies force them to ignore many cocoa and chocolate goods, affecting the demand for them.
Moreover, in more developed economies where the residents earn sizeable incomes, reduced natality rates, weight loss dieting, and other socioeconomic factors may also encourage a drop in consumer demand for cocoa products.
While these effects may not be immediately obvious, over time, they affect the overall demand for cocoa products. As a result, they contribute to reduced profitability for cocoa producers and distributors in Nigeria and globally.
Cocoa Producers Low Income
Taking Nigeria as a case study, several cocoa producers operate on smallholder farms that are typically less than a hectare. Unfortunately, due to their relatively small production capacity, most of the farmers earn just enough to cater to their subsistence from their outputs.
In many cases, rural cocoa farmers do not have enough leftover income to significantly scale up their operations. Faced with such realities, cocoa farmers are handicapped from making sizeable profits.
Moreover, farmers in Nigeria are also subject to unpleasant economic situations such as inflation which cuts down their purchasing power and standards of living.
Unfavorable Production Conditions
Several environmental conditions also influence profitability for cocoa farmers. For example, fluctuating weather conditions expose cocoa to pests, diseases, uneven ripening, and bean contamination. All of these result in low yield which then lowers the farmer’s profit margin.
Continuous low yield and unprofitability without external support often demotivate farmers from continuing to produce cocoa. This leads to more farmers abandoning cocoa production, resulting in lesser cocoa bean output, which affects the value chain’s growth.
Other profitability limiters include
- Illiteracy predominance among farmers
- Unfriendly government policies
- High production/distribution cost
- Insufficient processing and value addition
This blog is the first in a two-part series. Continue reading the second part via this link “How to increase profitability in the cocoa industry.”
