Before the price of cocoa on the New York futures market soared this week to reach the record level of $6,500 per ton, 150% more than what was paid in January 2023, many chocolate lovers had already noticed that something was happening: higher prices, smaller packaging, products with lower cocoa content…
These are the first effects of the perfect storm that is brewing over the chocolate sector, a succession of bad news with no obvious solution in the short term that originates in Africa and that has already caused economic shocks in Belgium, the second largest chocolate exporter. of Europe. The problems may be more serious than the questions that consumers ask themselves, such as whether Easter eggs will be more expensive this year than last or whether they should stockpile at home: the Swiss manufacturer Barry Callebout, of Belgian origin, has announced the dismissal of 500 employees, more than half of the workforce in the country.
The origin of the crisis is the poor harvests recorded in the Ivory Coast and Ghana, where 60% of the cocoa consumed in the world comes from. The heavy rains have rotted a large part of the plants, also affected by different diseases and pests. The supply of cocoa has seriously contracted, which in a context of increasing demand on a global scale, driven by Asia, has caused constant price increases over the last year until reaching this week’s unprecedented peak.
This part of the crisis could be seen coming, says Javier Blas, a commodities specialist at Bloomberg, who recalls that the low prices that have been paid for cocoa for years have left this crop in the hands of small farms. “Decades of insufficient investment have ended up colliding with the growing demand for chocolate. “Old cocoa trees pose two problems: poorer harvests and plants especially vulnerable to bad weather and disease, two factors that have come into play this year.”
This situation has led to a “brutal mismatch” between supply and demand, continues Blas, who estimates that the market faces a deficit of between 300,000 and 500,000 tons. “This is a necessary crisis. The world needs higher prices to encourage the replanting of millions of old trees and better care for young ones. In the end, market forces will rebalance the market, but everyone should prepare for a few years of higher prices,” concludes the Bloomberg analyst.
There is still another factor at play. At the end of the year, a directive will come into force that prevents the marketing in the EU of products that have contributed to deforestation in third countries, which has forced suppliers of agricultural raw materials to trace their origin. There are currently hundreds of thousands of tons of cocoa stored in Africa that cannot be imported to Europe if they do not obtain papers in time certifying that they have not been produced on recently deforested lands.
Given the small size of the farms, the cocoa sector, like the coffee sector, fears that it will not be ready in time. Pressure from importers and governments in Africa, Latin America and Asia affected by the directive (it also applies to beef, soy and timber) for the EU to give them more time to adapt could work. According to the Financial Times, the European Commission plans to slow down the entry into force of part of the directive.
The main chocolate manufacturers in Belgium have been working with cocoa of certified origin for several years, but the panorama is complex and each one faces it with their own strategies. While Callebout, which serves industrial clients, plans to cut 2,500 of its 13,000 jobs in 18 months to contain costs, the Swiss Lindt has announced that this year it will raise the price of its chocolates by 5% (it already did so in 2023 and still thus increased profits). Leonidas has opted for the opposite strategy, containing prices, and it has also worked for him. There will be a lack of supply, but demand, for the moment, is not declining.