May 2024 – Global cocoa market analysis show prices per metric tonne steadily climb toward the $9,000 threshold – reflecting the massive upsurge in cocoa prices in the last few months. The global cocoa beans market has been especially bullish through the second quarter of 2024, generating an even better profit margin than Bitcoin.
The recent meteoric rise in cocoa value is unlike anything recorded in history. The commodity’s price rose from a range of $4000-$4500 per metric tonne in December 2023 to unprecedented highs within the first five months of 2024. It surpassed the $10,000 mark in March and peaked at approximately $11,500 in April. But, it has since fallen back to hover around the $8,000 – $ 9,000 range which is still an approximate 3.5x leap from the $2600 range it had at the end of Q1 2023.
How Declining Production Volumes Is Affecting Cocoa Prices Globally
According to Statista, a little above 5 million metric tonnes of cocoa were produced globally in 2020-2021, the volume slightly dropped to 4.5 million metric tonnes in 2023/24. However, the performance so far in the 2024/25 season pales compared to the previous years, contributing significantly to the price surge as supply fails to match the demand for the commodity.
The drop in production volume, especially from major cocoa bean suppliers in West and Central Africa, namely Côte d’Ivoire, Ghana, Nigeria, and Cameroon, has caused a steep drop in global cocoa supply. These countries collectively account for about 70% of the total global cocoa supply, which is why a drop in their performance has resulted in a relative scarcity of the commodity.
The decline in production and the resulting scarcity are largely due to climate change and adverse weather conditions in West Africa. Heavy rainfall, dry heat waves, and diseases are becoming more frequent, leading to poor yields from cocoa plantations across the region.
In the closing months of 2023, a spread of black pod disease in Côte d’Ivoire and Ghana, coupled with heavy rainfall, significantly affected cocoa farming outputs, as stated in a report from the International Cocoa Organization published in November 2023.
Due to the decline in production, export volumes from Côte d’Ivoire and Ghana fell by 28% and 35%, respectively. Experts predict a supply shortfall of over half a million metric tonnes of cocoa this year.
In addition, increased sustainability enforcement activities and the looming implementation of the EUDR traceability regulations in cocoa export procedures also contribute to the uptick in global cocoa prices.
Several major cocoa bean suppliers are steering clear of sourcing or distributing uncertified or undocumented cocoa – inadvertently reducing the volume they can supply and contributing to the increasing prices.
Note that, traceability is still a relatively new phenomenon in the African cocoa supply chain, hence the implementation has been slower, leading to a scarcity of traceable or certified cocoa.
Effect of the Price Surge on the Value Chain
The impact of the skyrocketing prices on the cocoa value chain has been tremendous. However, the effects are quite complex, affecting everyone differently based on their position and activities in the chain.
Effect For Farmers
The increasing prices mostly have positive effects on the producers—the higher the prices rise, the higher the producers’ incomes. With cocoa prices jumping by 4-5x compared to the previous season, farmers also stand to earn 4-5x revenue for whatever volume they put out.
However, since they’re producing less volume (one of the factors causing the price increase), the income difference may be minimal. Nevertheless, the increasing price per unit of cocoa beans should incentivize the farmers to invest more in their farms, produce more, and improve their outputs.
Effect for Distributors
Distributors also stand to benefit more from the rising value of cocoa beans in the global market. They can profit from the higher margins by passing on the bulk of the costs to processors and retailers.
However, they may also have to deal with drawbacks from buyers if the costs get too steep. This can lead to potential loss of business or strained relationships with their off-takers.
Effect on Chocolate Producers and Other Cocoa Processors
The biggest concern about skyrocketing cocoa prices is their effect on chocolate manufacturers’ businesses. With the increasing price of the main raw material for their products, they’re more likely to employ cost-cutting measures to keep their overheads low, causing market distortion in the process.
For example, companies may begin implementing “Shrinkflation” i.e. reducing final product quantity or quality while maintaining the same prices. In this case, chocolate manufacturers may reduce cocoa content in their products and replace them with less healthy alternatives like Sugar or cocoa butter equivalents.
But, should the manufacturers decide to maintain the same product quality and quantity, they would have to significantly increase the price to match their production costs.
Effect on Consumers
Unsurprisingly, there’s been a proportional impact on the prices of cocoa-based products. Chocolates, cocoa-based beverages, and other cocoa derivatives now sell at significantly higher prices than they did a few months ago.
As a result, consumers now spend more to purchase their regular cocoa-based necessities. Unfortunately, some can no longer afford to purchase these products and have to settle for cheaper alternatives.
Essentially, the price increase is turning cocoa-based products into luxury commodities.
Overall Implications for the Value Chain
Continuous price increases will exert economic pressure throughout the cocoa value chain, necessitating innovations in cost management, supply chain resilience, and market strategies.
In addition, rising cocoa prices are altering market dynamics and causing shifts in market share and profitability expectations among producers, distributors, and processors. While the producers and distributors seem to be raking in profits, only processing companies with more cost-efficient operations or flexibility to differentiate their products will be able to match up.
Market experts anticipate the cocoa price hike to continue for majority of 2024 due to the supply shortfall. Ultimately, the consumers will bear the brunt of the increasing cocoa prices either through direct increase in the prices of cocoa-based commodities or through shrinkflation measures from processors.
Sadly, reduced production volumes will still hinder many smallholder cocoa farmers from enjoying the benefits of the price hike. On the other end of the spectrum, cocoa processors will turn their attentions to alternative markets in South America and Indonesia to obtain cocoa beans.
Overall, major industry stakeholders are hoping for a recovery by the beginning of 2025, but it primarily depends on the next crop cycle starting in October 2024.
