Cocoa Crisis: Rising Prices, Global Impact, and Future Challenges

Cocoa prices have reached record levels in recent years, driven by a drop in global production due to climate events, pest outbreaks, and a lack of investment and technological development in producing countries. In April, cocoa prices skyrocketed to over US$10,000/t in the US futures market, nearly tripling from 2023 levels. Just a few months earlier, in October 2023, prices were recorded at US$3,691/t, according to the International Cocoa Organization (ICCO). Although New York ICE cocoa bean futures dropped to US$7,658/t by the week of September 20, prices are still 113% higher than they were a year ago, reflecting ongoing volatility in the market. For the 2023-2024 agricultural cycle, global cocoa production is forecasted at 4.449Mt, a decrease of 547,000t from the 2022-2023 cycle, as reported by ICCO.

The rise in cocoa prices is having a significant impact on importer countries, particularly in Europe and North America, which together consume 75% of the world’s cocoa to make chocolate. Consumers are already feeling the effects in 2024, with chocolate prices in the Netherlands rising by 40% over the past three years and by 18% in the past year alone. However, this spike is mostly driven by inflation and increased costs for dairy, sugar, and energy rather than cocoa itself.

According to RaboResearch, a financial services provider for the food and agribusiness sector, many contracts between cocoa suppliers and manufacturers were hedged earlier in 2024, before the recent surge in cocoa prices. As a result, retail consumers have yet to experience the full impact. Julia Buech, Senior Analyst, RaboResearch, noted that due to supply chain lags and existing contracts, the steepest price hikes are expected in the second half of 2024 and into 2025.

The increase in cocoa prices is driven by a combination of biophysical and economic factors. A significant 75% of global cocoa production comes from West Africa, primarily Ghana and Ivory Coast, which together supply over 60% of the world’s cocoa. This concentration leaves the global market vulnerable to disruptions in these countries, where recent years have seen cocoa crops devastated by uncontrolled pests and aging plantations. Moreover, climate change and reduced rainfall caused by El Niño have worsened the crisis, leading to a 40% to 50% drop in production in the region. 

While climate change is a major factor, experts point out that the major issue is rooted in structural challenges like insufficient resources and poor crop management. In West Africa, the cocoa industry is largely nationalized, meaning that farmers sell their crops to the government, which then negotiates on the international market. This system results in low payments to producers, reducing competitiveness and minimizing investments in crop improvements, pest control, and modern agricultural techniques.

A related issue is the declining interest of younger generations in cocoa farming. Limited investment in research, development, and new technologies has further hampered productivity, with farmers increasingly turning to more profitable crops like rubber and coconut.

Adding to the challenge, new EU deforestation regulations (EUDR), set to fully take effect in 2025, will impose restrictions on the sale and export of cocoa and other commodities from regions engaged in deforestation or forest degradation. Compliance with these rules could increase global cocoa costs by 4%, according to the EUDR impact assessment.

In light of this situation, economists suggest that the global cocoa shortage could present opportunities for Latin American producers. Countries like Ecuador and Brazil are expanding their cocoa production, with annual growth projected at 5% and 4.3%, respectively, through 2032. André Braz, Coordinator of the FGV-Ibre price index, emphasized that major chocolate companies may seek partnerships with smaller producers who dominate Brazil’s cocoa sector. “They could negotiate prices in exchange for pesticides and technology, which could be highly beneficial for producers who often struggle to access credit,” Braz explained.

Mexico could also benefit from the cocoa shortage if supported by proper government financing. However, the country must first satisfy its domestic demand before capitalizing on global opportunities, as highlighted by Chief Economist Humberto Calzada of Rankia Latin America. “Mexico is not yet on the same level as major producers like Ecuador, Indonesia, Ghana, Ivory Coast, or Brazil,” Calzada added.

Looking ahead, experts believe that higher retail prices, evolving consumer habits, and positive shifts in global cocoa supply could eventually help stabilize the market. However, it will take three to four years for new cocoa trees to begin producing beans, meaning that recent farm investments in West Africa and South America will not provide immediate relief.

In the meantime, the retail market is likely to see changes such as smaller package sizes and ingredient substitutions, like replacing cocoa butter with palm oil. These adjustments could dampen demand in an industry where chocolate sales have already fallen by as much as 6% in parts of Europe since 2021. Inflation is also expected to hit smaller candy merchants particularly hard. “Many of the smaller players are already under immense pressure. Some of them may simply disappear,” warned Judy Ganes, President, J Ganes Consulting.