Wholesale cocoa cost reaches highest level in over a decade, causing ongoing chocolate inflation.

Wholesale cocoa cost reaches highest level in over a decade, causing ongoing chocolate inflation.

The Bitter Reality of Rising Cocoa Prices

The sweet pleasure of chocolate comes at a cost, and that cost is soaring. The price of wholesale cocoa beans has reached its highest point in over a decade, and it is predicted that the prices of this crucial chocolate ingredient will remain elevated throughout 2024. This surge in prices is primarily due to a decline in production in West Africa, which accounts for two-thirds of the world’s bean harvest.

The region has been hit hard by heavy rains and a rot-causing disease, decimating crops and raising concerns about the future supply of cocoa beans. Compounding the issue is a slump in bean processing worldwide, essential for transforming cocoa beans into chocolate. This indicates that factories are facing difficulties in accessing adequate volumes of beans.

Top manufacturers, such as Lindt & Spruengli AG and Hershey Co., have already sounded the alarm, warning that further price hikes are on the horizon. Consumers have already felt the pinch of higher costs for their chocolate products, and it seems these price increases may continue.

Paul Joules, a cocoa analyst at Rabobank in London, aptly summarizes the situation by stating, “We clearly are in a very tight situation.” He predicts that chocolate companies may resort to adopting smaller chocolate bars and potentially even higher prices to navigate this challenging market environment.

The impact of this supply shortage is particularly evident in the Ivory Coast, the world’s largest cocoa producer, where the upcoming harvest is expected to shrink by nearly a fifth from last year. In response, the country has suspended sales that bind farmers to delivering goods at specified times in the future. Similarly, Ghana, the second-largest cocoa producer, is likely to experience a dip in output below historical averages.

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Joules warns that this scenario could lead to a third consecutive supply deficit this year, and possibly even the following year. To exacerbate matters, an El Niño weather pattern threatens to further hamper cocoa output, while farmers grapple with the devastating swollen-shoot virus and black pod disease, which causes the beans to rot.

Although the COVID-19 pandemic initially resulted in a slowdown in global chocolate demand and a surge in cocoa stockpiles, recovering consumption and two years of supply shortages have significantly diminished those inventories. Lindt, one of the leading chocolate makers, has responded by building up its cocoa bean stocks as a buffer against higher prices and potential shortages. However, this strategy has come at the cost of reduced sales volumes, as higher prices discourage consumers from purchasing as much chocolate.

For some companies, the full impact of rising wholesale costs may not yet be felt. Previous hedging activities have provided a temporary shield against significant price increases. However, Lindt’s Chief Financial Officer, Martin Hug, cautioned that most players will start experiencing additional cost pressure from the second half of 2023, likely leading to necessary adjustments in pricing.

The future of chocolate consumption remains uncertain, especially as cocoa prices continue to rise. Consumers may have to brace themselves for smaller chocolate bars and higher price tags, as chocolate companies navigate the challenges of a constrained cocoa market. Regardless of the obstacles, one thing is for certain – chocolate remains an irresistible pleasure worth savoring, even amidst the bitter reality of rising cocoa prices.