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In March this year, global chocolate prices reportedly rose up to US$ 10,000 per metric ton which is double the price more than last year. The price of cacao beans, the essential ingredient for chocolate, surged to an unprecedented $12,000 per tonne in April due to severe crop shortages and critically low liquidity in the commodities market. This acute global supply shortage is being largely attributed to climate change. The surge in prices is influencing retail pricing strategies of the companies that are facing significant challenges in managing input costs.
In Ghana and the Ivory Coast, the leading producers of the world's cocoa beans, a poor harvest season has resulted from El Niño weather conditions, black pod disease, and aging cacao trees. Additionally, longstanding unfair market practices have allowed large chocolate companies to retain most of the profits, leaving farmers with insufficient income to replant trees or implement disease prevention measures.
This global chocolate crisis has escalated to an extent that trader a UN Trade & Development report indicates that the International Cocoa Organization anticipates a global deficit of 374,000 tonnes for 2023-24, compared to a shortfall of 74,000 tonnes last season.
"Basically we have a massive supply shortage this year. I mean, we see production down 17 percent relative to last year," says top trader Pierre Andurand.
"Most analysts out there have it down 11 percent, but that’s because they tend to be very conservative. You know, they have lots of clients and they don’t want to to worry the world, so they come with relatively conservative estimates. We’re in a situation where we might actually run out of inventories completely.”
This is not to say chocolate giants are running on losses. Companies like Lindt and Nestlé together raked in nearly $4 billion last year, while Hershey’s confectionery profits totalled $2 billion. However, experts have pointed out that these companies have not done much to help raise farmers’ income or redistributing wealth down the supply chain.
Dr Michael Odijie, a researcher of cocoa farming conditions in West Africa at University College London said in a recent interview, “Farmers are not earning a living wage, all because chocolate manufacturers desire to keep chocolate cheap for consumers. There is enough research to demonstrate that, in a way, chocolate is being subsidised by the children of West Africa,” he said.
Homegrown brands are adapting to new pricing
In India, importers and suppliers of cocoa and chocolate brands such as Valrhona, Callebaut, Van Houten etc are facing the fallout of the war raging in West Asia. Indian chocolate makers, like their global counterparts, rely on imported cocoa beans from West African nations such as Ghana and the Ivory Coast. The spike in cacao prices to $12,000 per tonne significantly raises their production costs.
The global shortfall in cocoa production, projected to be 374,000 tonnes for 2023-24, exacerbates supply chain disruptions. Indian brands may struggle to secure a steady supply of quality cocoa beans, affecting their ability to meet production targets. While most artisanal Indian brands source cocoa from organic farms in the cacao-growing states of Kerala, Karnataka, Andhra Pradesh, and Tamil Nadu, they also supplement this with cocoa from international markets. Furthermore, as global prices surged, Indian cocoa prices also reached a record high of ₹1,000 per kilo in April.
L Nitin Chordia, who founded the beanr-to-bar chocolate label Kocoatrait shares that though the demand for the brand’s chocolates did not bear an impact, procurement has ben trickier. “There was no real direct impact. The demand did not have any impact. We did raise the prices for a few variants. The main impact has been increased costs on procurement of beans (at high prices) and storage. Earlier we were on need base procurement but that has changed this year. This needs more capital which comes at a cost. So this is an additional cost apart from the prices of cocoa itself going up,” said Chordia.
“Even the storage is a cost since we have had to store for many months! and storage of cocs is not easy,” he adds. Needless to say, bakers, patisssiers and dessert makers are also caught in this crisis and have had to adapt especially when it comes to prices. Isha Sinha, a home baker based in Kochi shares, “I’m aware of the price hike made by most most cocoa brands; luckily, I stock my staples, sometimes months in advance. However, the rise in prices of dark and milk chocolate will affect my total costing; although I’m not thinking of raising my prices yet,” she said.
Konkona Sinha, a Kolkata-based dessert maker who specialises in chocolate desserts blames the inflation as well. “It’s not just chocolate that’s more expensive now, everything’s pricier, be it sugar, flour, butter, syrups or essences. Our total cost of production has gone up quite a bit this year and that was before the cocoa crisis was making any dent whatsover. Small-scale bakers like us can’t hike up prices by a big margin, so usually we adapt and at times we make substitutions,” says Sinha.
Prominent brands in India are already making changes to their line-up and pricing. Popular Mumbai-based dessert brand Theobroma are prioritising recipes that use seasonal produce. In 2024, popular baker’s chocolate brand Callebaut started with 55% dark chocolate at ₹1,239 but last month, it increased to ₹2,124, and now it is at ₹1,994. Beloved homegrown brand Mason & Co hiked up the price of a kg of their 55% dark chocolate by roughly Rs 500.
Across the world chocolate makers have reduced the size of products such as bars as a result of the huge cocoa price increase. Ghanaian authorities, who sell all of the country's beans, want to delay delivery of up to 350,000 metric tons this season - nearly half of the cocoa beans they sold - due to Ghana's devastated crop, according to sources.
A delay of 350,000 tons means cocoa traders and processors could face losses of about $4,000 per ton on cocoa futures they had bought to hedge their physical bean purchases, or around $1.4 billion combined, the sources said.
Traders usually enter agreements to purchase beans, like any other commodity, months in advance with the intention of reselling them later at a profit. This involves taking a long position in the physical market. While waiting for the delivery of the physical commodity, which can take weeks or months, they need to safeguard against potential price drops. They do this by taking short positions in the futures market to protect against losses from their long position.
Short trading bets on price declines, so when the physical commodity arrives, the long and short positions offset each other, ensuring a fixed price. However, this strategy falls apart if the physical delivery, in this case of cocoa beans, is delayed in a rising market. "We're sitting staring at our screens, barely trading," said the head cocoa trader at a global trading house specialising in agricultural commodities.
