Cocoa sector reaches crisis point as crop prices hit $10,000 a tonne
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Cocoa prices on the commodities exchanges hit a renewed high yesterday, with the Futures market touching the $10,000 a tonne mark for the first time ever, as prices more than treble in the space of a year, causing widespread industry concern, writes Neill Barston.
As Confectionery Production reported just last month, prices had hit a trading high of more than $6,000 on the US market in New York, amid a combined ‘perfect storm’ of poor harvests, deficits in supplies, and crops impacted significantly by disease in core producing nations of Ghana and Ivory Coast, leaving many sector analysts fearing the long-term impact on the industry.
In the space of just a few short weeks, the situation has worsened further, with prices continuing to spiral upwards – (though the stock exchange high – which was billed as a 46 year high – is only in nominal terms not accounting for inflation (with the previous peak in 1977 being around $5,700, which would be worth $28,000 in today’s money, the rapid price spikes seen in the past year alone have caused considerable concern across industry.
Major companies including Hershey, Mondelez and Lindt have all noted the disruption that such spikes have caused for the sector, with reports emerging this week in the Ivory Coast of potential agricultural strikes by farmers, who are still largely receiving below poverty-line wages in many instances in West Africa. Typically farm gate contracts are no more than $1,800 a tonne for this year’s cocoa crops, which is well under 20% of the prices now being commanded on the US stock exchange – which has ramped up after multi-billion investment from hedge fund traders.
Significantly, reports are now emerging from Ivory Coast in which farming organisations are now reportedly calling for Yves Brahima Koné, the head of Ivory Coast’s Conseil du Cafe-Cacao governing body to resign if the pricing situation does not improve for farmers, some of whom are reportedly reluctant to sell their depleted cocoa stocks in the belief that even further price hikes are pending.
Industry reaction
Marc Donaldson, of Cacao2chocolate non-profit industry consultancy, who is a former executive director at the Cocoa Association of Asia, as well as formerly being a director at Barry Callebaut in Singapore, believed that urgent action on the spiralling costs of cocoa is needed to assist farmers in West Africa.
He said: “We need systematic change. The current market pricing system in Ivory Coast and Ghana (both Gov’t regulated), was designed to protect minimum pricing, and is today not fit for purpose. In places where there is an “open” market, farmers are today getting the benefit of the rise in value, eg Uganda, Nigeria, PNG, Indonesia, Philippines, Ecuador. Generally in these producers farmers are getting US$6.00+ per kg.
“There is so much not right about this situation. After 20 years of sustainably talk, we, the industry have not moved the needle in any significant way,” noting that in his view, significant reform in how the West African market operates should be delivered as a priority.
Meanwhile, James Cadbury, founder of Love Cocoa, was among many to react to the latest major spike in cocoa prices, issuing a warning that the major increases in costs could potentially put the viability of smaller companies at risk.
As he noted, the situation in Ivory Coast, which remains the largest supplier nation is set for further uncertainty in the coming months with a mid season crop expected to yield a deficit of 33% (400,000 as against 600,000 tonnes last year), and conditions in Ghana reportedly at a 22-year low in terms of production due to a combination of factors including poor harvests, weather patters and crop disease, the picture is increasingly troubling.
In his view, the emergence of other companies that are using cocoa-free alternatives to chocolate are worth considering given the uncertainties of the present situation which offered them an opportunity.
On the market spikes, Cadbury said: “This surge (in prices), fuelled by climate change and market speculation, is shaking the foundation of chocolate production and pricing, putting smaller chocolate companies at risk.
“In Ghana, cocoa production has plummeted to a 22-year low, with similar forecasts from the Ivory Coast. These supply shocks are compounded by speculative trading, driving prices even higher and threatening the sustainability of many beloved chocolate brands.
“At Love Cocoa and H!P Chocolate, we see this as a call to innovation. Despite the grim outlook, there lies an opportunity for growth, sustainability, and the birth of new chocolate alternatives.”
“Given the surge in cocoa prices, it’s likely that up to half of the smaller chocolate brands could face closure within the next year. You can play a part in supporting these companies by purchasing their products. Prepare to invest a bit more in your chocolate indulgences moving forward; your support could make all the difference.”