The cocoa market has been experiencing extreme fluctuations in prices due to a failed crop in Ivory Coast and Ghana, followed by financial speculation from investors like hedge funds. This has caused the price of cocoa to skyrocket, reaching levels not seen in decades. Large food companies have been forced to raise prices for their products to compensate for the increasing cost of cocoa. The situation is unlikely to stabilize in the near future.
The poor cocoa crop in Ivory Coast and Ghana was caused by a combination of factors such as low rainfall, plant disease, and aging trees. The International Cocoa Organization has forecasted a production shortfall that will result in global production trailing demand by a significant margin. The situation has been exacerbated by financial speculation from investors, compounding the already existing issues in the cocoa market.
The global price of cocoa is set through various mechanisms, including government-regulated rates in countries like Ghana and Ivory Coast and global exchanges where physical beans and futures contracts are traded. There has been a disconnect between the prices set on the global exchanges and the reality on the farms, leading to rapid price increases. The volume of trading and the settlement of futures contracts with physical delivery have also contributed to the price spikes.
Chocolate prices are on the rise as companies like Hershey and Mondelez have already raised their prices in response to the high cost of cocoa. Despite these price increases, both companies reported increased profits as consumers continued to purchase their products. Small “bean to bar” chocolate makers who source premium cocoa from smaller farmers have been less affected by the price spikes, as they have always paid higher prices for quality cocoa to ensure the ethical treatment of farmers in the industry.
Some cocoa farmers see smaller buyers who pay premiums for quality cocoa as allies in times of low production, as they offer fair prices and recognize the value of quality beans. Large chocolate manufacturers, on the other hand, focus on bulk prices and may not always prioritize quality when purchasing cocoa beans. The price instability in the cocoa market has highlighted the need for a more efficient system that benefits farmers and ensures fair compensation for their labor. Efforts to protect farmers from financial speculation and support sustainable practices in the cocoa industry may help to stabilize prices in the future.
