Santa Claus in danger? A poor crop of cocoa beans is sending chocolate prices skyrocketing

Low rainfall in Africa is having a significant impact on chocolate prices this year. The largest suppliers of cocoa beans are struggling with an insufficient harvest, which, together with inflation, is driving up the prices of confectionery. Specifically, on the New York Stock Exchange, cocoa beans were traded for more than 90,000 crowns on Friday, which, with the exception of a few days in September, was the most expensive since the 1970s (they were just below this threshold on Tuesday evening – editor’s note).

Cocoa is one of the crops that tends to thrive in constant temperatures, high humidity and abundant rain. In addition, it requires nitrogen-rich soil and a habitat that is well protected from the wind. “There’s not a lot of room for error, which makes cocoa particularly vulnerable to climate change,” Wells Fargo Agri-Food Institute analyst David Branche told CNBC, noting that this year’s weather has been rather unkind to the crop.

In deficit for the third year in a row?

Due to its specific characteristics, cocoa grows only in areas near the equator, mainly in West Africa. Specifically, Ivory Coast, Ghana, Nigeria and Cameroon account for 75 percent of the global harvest, according to Branch. This year, in addition to the drought, there was also a wave of extraordinary rains, which caused a faster spread of the rotting disease, which can have fatal consequences for the bean crop.

“A weak harvest then pushes the price of beans up, so that their processors’ margins become thinner, and therefore they do not invest in more expensive production – which is more expensive precisely because of the quantitatively and qualitatively worse harvest,” explains Trinity Bank chief economist Lukáš Kovanda. At the same time, he adds that Ivory Coast’s harvest in the 2023-2024 season should be up to a quarter lower than last year. A similar estimate was also published by the Bloomberg news agency at the end of September.

However, it should be noted that the final numbers are not yet in question. The farmers themselves, who might start holding their stocks in anticipation of higher prices, can still wave them. “However, both the situation in Ivory Coast and Ghana will significantly contribute to the fact that the world bean market will be in deficit for the third year in a row – which will most likely continue into next year as well,” adds Kovanda.

From Lindt to Orion

According to Bloomberg, cocoa prices have risen by almost half over the past year. What’s more, it’s possible that deli inflation will continue even as food prices moderate more broadly. After all, even leading chocolate manufacturers such as Hershey Co. have already warned against a possible further price increase. and Lindt & Spruengli AG.

The mentioned trend is also confirmed by the Swiss multinational company Nestlé, under which the originally Czech brand Orion falls. “The increase in cocoa prices is unprecedented, and there is probably no chocolate manufacturer that has not felt it. Cocoa is the primary raw material in the production of all chocolate confections,” Tereza Skrbková, spokesperson for Nestlé for the Czech Republic and Slovakia, told Euro.cz.

Sugar is also more expensive

Both the producers themselves and the end consumers are already reacting to increased input costs, or rather prices. Demand is falling across Asia and the European Union, which imports 68 percent of beans from the Ivory Coast. “If there is no dramatic improvement, we can talk about a relatively desperate situation. Further price increases could affect consumption,” Darren Stetzel, vice president of soft commodities for Asia at StoneX, told Bloomberg.

Some experts have even started comparing chocolate to a luxury item, the price of which is also rising due to the rising price of another key ingredient, namely sugar. It is currently sold in the European Union for 56 percent more than in 2020. The Czech Republic is a bit better off, but even here customers pay more. Specifically, for example, in September, one kilo of granulated sugar cost an average of 26.12 crowns, which, according to the Czech Statistical Office, is almost half as much as three years ago.

Expensive chocolate will mainly be the domain of next year

For the coming season in West Africa, analysts from Rabobank and Marex predict a fall in cocoa production of 279 thousand tonnes, which is more than the last two shortfalls combined, with a tense atmosphere throughout the supply chain. For example, merchant Cargill Inc. recently said that high prices are already having a negative impact on demand in Asia, while Switzerland’s Barry Callebaut AG struggled with overall lower sales in July. And African farmers? Meanwhile, they face higher costs and shortages of fertilizer and pesticides.

“On the Czech market, a noticeable increase in the prices of chocolate and products made from it should be evident, especially in 2024, when stocks bought at cheaper prices are sold off,” predicts Kovanda. In addition, according to him, the situation is worsened by the fact that global suppliers are emptying their warehouses after the pandemic slowdown. “Empty warehouses understandably represent additional pressure on the growth of chocolate and related confectionery prices,” he concludes.