In a relentless ascent since the latter half of 2022, the price of cocoa has now doubled, hitting an unprecedented peak in January 2024, as indicated by market data. This dramatic surge in cocoa costs foreshadows troubling times for both the chocolate industry and consumers with a penchant for sweets. Major players in the confectionery sector, such as Hershey and Mondelez International, which owns Cadbury, were compelled to pass on these heightened expenses to consumers last year. Consequently, Hershey reported a notable 11.5% decline in year-on-year profits during the fourth quarter. In response to the challenging economic climate, Hershey recently disclosed plans to reduce its workforce by 5%. Similarly, Barry Callebaut, recognized as the largest chocolate manufacturer globally, announced intentions to lay off 2,500 employees, constituting 18% of its workforce.
The escalating cocoa prices can, in part, be attributed to climate disruptions. Cocoa, primarily cultivated by small-scale farmers in West Africa, particularly in Ghana and Ivory Coast, accounts for approximately 60% of global cocoa production. Over the past two years, global chocolate prices have surged by 25%, raising concerns across the industry. The underlying causes of this price surge remain subject to debate, prompting a deeper exploration into the dynamics of two key ingredients of chocolate: cocoa and sugar. This article endeavors to traverse continents, delving into Asia and Africa to elucidate the factors driving the surge in prices and offering insights into the foreseeable future.
The essence of chocolate lies in its three primary ingredients: cocoa butter, cocoa liquor, and sugar. These constituents collectively constitute 80-90% of chocolate formulations, thereby rendering any fluctuations in the prices of sugar and cocoa pivotal in shaping chocolate prices. Notably, both sugar and cocoa prices have surged by 40% in the past year alone.
The first contributor to this price hike is sugar, a commodity produced worldwide. Brazil leads the global sugar production landscape with an output of 38 million metric tons, trailed by India (32MMT), the European Union (15MMT), and Thailand (11MMT). Despite substantial production figures, India and the EU predominantly consume their output domestically, leaving Brazil and Thailand as the primary exporters. While Brazil anticipates one of its most prolific sugar-producing years owing to favorable weather conditions and unfavorable ethanol economics, Thailand grapples with one of its severest droughts in recent memory, resulting in an estimated 18% drop in yield. The repercussions of these contrasting circumstances on sugar prices are profound. A defining feature of commodities is their inability to be consumed before production, although they can be stored for future utilization, a capability that engenders stockpiles. Stocks serve as pivotal mechanisms in commodity markets, mitigating production shocks. The scarcity of commodities for a given year is determined by that year’s production and the previous year’s final stocks. Consequently, stocks are regarded as indicators of scarcity within markets, exerting upward pressure on prices when they are low. Thus, the 40% surge in sugar prices this year can be attributed to dwindling stocks and the resulting supply constraints.
