New Costly Habits

Easter chocolate eggs at €12 each? Yes, during the Easter holidays of 2024, this has become a reality, and prices have risen even further. The price of chocolate and chocolate treats has surged by a staggering 20-40% over the year. Moreover, in April, prices for the main raw material of chocolate, cocoa beans, exceeded $11,000 per tonne. This represents almost a threefold increase over the last four months. However, this wasn't unexpected for the readers of The Gaze. Our publication had already warned in December 2023 that we were entering a two-year cycle of rampant chocolate price increases. Yet, the reality has surpassed even the most catastrophic forecasts. What will happen with chocolate bars and candies going forward?

The aftertaste of Easter chocolate in 2024 turned out to be quite bitter. For instance, let's look at the Kinder Gransorpresa, a popular children's chocolate egg. This treat was sold throughout Italy, regardless of the point of sale, at a fixed price. This year, the 150-gram version cost €11.99 compared to €9.99 last year. This €2 increase was relatively modest, amounting to a 20% rise.

Meanwhile, the average Easter eggs for adults, containing either milk or dark chocolate and weighing between 320 and 365 grams, cost over €18 each. And these treats have increased in price by more than 33% over the year. Some well-known chocolate brands have even raised their prices by 40%. Prices are rising particularly quickly for chocolate bars, as they contain the highest proportion of cocoa ingredients.

And this isn't just happening in Italy or Germany. For example, in Ukraine, unlike in EU countries, there is no widespread tradition of giving chocolate Easter eggs, but the consumption of chocolate bars, which have also increased in price by nearly 40% in the last six months, remains popular.

So, what's causing this price gallop on chocolate shelves?

Drought Killing Cocoa Trees

Summarizing the situation, the problem has originated in the two main cocoa-producing countries, Ghana and Côte d'Ivoire, which together account for almost 60% of the world's cocoa bean production, according to the International Cocoa Organization. Specifically, Côte d'Ivoire accounted for 44% of global production last season, and Ghana for 14%.

These two relatively small West African nations are located on the western part of the continent, bordering the Gulf of Guinea. In recent years, they have experienced increasingly unfavourable climatic conditions for cocoa trees.

These plants require a balance between sunshine and rain. They have been devastated by prolonged drought periods followed by bouts of tropical downpours. While droughts have merely suppressed the trees and reduced their yield, excessive rainfall has led to flooding and facilitated the spread of specific viruses that affect cocoa trees. For instance, experts are raising the alarm about the cocoa swollen shoot virus disease (CSSVD), which causes plants to die. In Ghana alone, this disease has already resulted in the loss of over 500,000 hectares of cocoa plantations, which is approximately 17% of all planting areas. This disease is also spreading to plantations in the neighbouring country of Côte d'Ivoire.

Similarly, two other West African countries, Nigeria and Cameroon, each accounting for 6% of the world cocoa production, are suffering. In total, these four countries account for 73% of the world's production of chocolate raw materials. Another 21% of production comes from South American countries, and a further 6% from countries in Asia and Oceania.

So, the roots of the problem are clear – an overly high concentration of production in four countries located in the same region, thus suffering from natural disasters synchronously.

El Niño-23 Versus Chocolate-24

Last year, all West African cocoa producers experienced the adverse effects of the harsh weather conditions triggered by the El Niño hypercyclone. Originating in the Pacific Ocean, this climatic phenomenon has a global impact. In 2023, it caused unusually high temperatures across Europe and brought heavy rains to West Africa, home to over two-thirds of the world's cocoa production.

As previously mentioned, the rains caused rot and disease in tropical cocoa trees. Consequently, cocoa bean harvests in Côte d'Ivoire decreased by 20% compared to the previous year, while Ghana failed to reach historical average levels.

Global traders estimate a cocoa shortfall of 279,000 tonnes in 2024. This would not have been as noticeable if there had been carry-over stocks from previous years. Typically, a good harvest year is followed by a less productive one, with the surplus from productive years helping to compensate for the lean years.

However, 2024 has been different. We are witnessing the third consecutive season where farmers are harvesting below average, hitting multi-year lows in production. This has depleted the carry-over stocks, creating a significant deficit, and prices have surged at an unprecedented rate over the past year.

Photo: Previous unproductive years and climate difficulties in 2023 led to cocoa bean prices reaching an all-time high of $11,256 per tonne on April 18, 2024. Such a price had never been seen before. Source: Collage The Gaze by Leonid Lukashenko

Record? Not Yet. It Has Been Worse.

Previous unproductive years and climate difficulties in 2023 led to cocoa bean prices reaching an all-time high of $11,256 per tonne on April 18, 2024. Such a price had never been seen before. Prices have continued to fluctuate close to this level for a week now. But is this truly a record?

The last historical peak occurred 47 years ago, in 1977, when the price nominally hit $5,400 per tonne. However, it's important to remember that a dollar in 1977 is now worth five times more. Thus, in today's dollars, cocoa in 1977 would have cost about $28,000 per tonne. This is almost incomprehensible.

Thus, even more severe price storms have occurred in the cocoa market than we are currently witnessing right now. It's essential to remember this. How quickly did markets stabilize back then? It took at least two years to return to average levels. Thus, a return to normalcy could still be two, or perhaps even three years away.

Is the Cocoa Bean Shortage the Sole Culprit?

Why do we believe that resolving the chocolate crisis will take longer than before? There are three reasons.

Firstly, the current reduction in cocoa bean supply coincides with a rapid increase in global demand for chocolate. Beyond developed nations, developing countries have begun to consume chocolate actively as their populations prosper, affording them the luxury of purchasing confectionery.

Secondly, there is no quick way to expand plantation areas as cocoa trees only begin to bear fruit after five years. Therefore, raising prices would encourage investment in new plantations in cocoa's homeland - South America - as well as in countries like Indonesia, Vietnam, and further across Asia. But this won't happen quickly.

Thirdly, the expansion of cocoa plantations is significantly hindered by the environmental agenda. Global corporations demand compliance with ecological standards and the preservation of tropical forests. However, effective production necessitates the creation of cultivated plantations, often resulting in deforestation. While utilising wild cocoa trees could somewhat aid production expansion, this approach is not efficient and increases the cost of cocoa beans.

But there are other factors at play.

Currently, in West Africa, there are approximately 2 million cocoa-producing farms, each owning plantations covering just three to four hectares. They sell cocoa beans at very low prices, so the earnings of the workforce amount to roughly a dollar per day. However, between these farmers and chocolate manufacturers stand long chains of intermediaries.

This is why raw materials are so expensive for end buyers - international corporations like Cadbury or Nestle. The issue lies in the artificially inflated number of intermediaries, leading to excessive price hikes for raw materials.

To grasp the magnitude of the issue, it's worth noting that farmers receive only 6% of the retail price of a chocolate bar, while cocoa beans constitute over 60% of its production cost.

Certainly, replacing cocoa beans in chocolate production is impossible as it wouldn't be chocolate anymore. However, it might be time to expect more modest appetites from global corporations that produce the lion's share of chocolate products.

The main buyers of cocoa beans - the USA, Germany, and the Netherlands - collectively account for about 40% of global demand. Confectionery manufacturers in these countries warned in December 2023 that prices for their products might increase. But now they are facing the possibility that consumers will buy less chocolate at exorbitant prices.

There are already indications that major global chocolate producers might even sacrifice some profits to curb prices. For example, Nestle SA stated that although it absorbed some higher costs through its efficiency, it might have to make "responsible pricing adjustments in the future, taking into account consistently high cocoa prices."

At this point, relatively small local chocolate producers and other confectionery makers could play a role. They have much smaller profit appetites and are more moderate in marketing expenses, so they could offer more reasonable prices. For instance, Ukraine exported 22 thousand tons of chocolate to EU countries in 2023, ranking third among non-EU countries in this regard.

Specifically, Ukraine accounted for 13% of the EU's chocolate imports, according to Eurostat. Only Switzerland (62 thousand tons, 36% share) and the United Kingdom (61 thousand tons, about 36% share) exported more chocolate to the EU.