Everyone is hurting under inflation, however this week chocolate lovers are finding out they may end up hurting more than most.
Wholesale cocoa beans have seen prices rise to the highest they have been in more than a decade, and reports indicate manufacturers see those prices holding steady through 2024. The root of the high prices according to analysts is a faltering production out of West Africa, which is responsible for two-thirds of the world’s cocoa bean production.
As the region has been pummeled by heavy rains, a rot-causing disease has savaged the crops this year, sparking fears among traders supplies may collapse. Fuad Mohammed Abubakar, the head of Ghana Cocoa Marketing Company UK noted that the production failure there is just a part of a broader slump in supply globally, leading to a lack of volume for processors which will inevitably trickle down to the production of chocolate;
Those conditions have led to the executives from leading confectioners such as Lindt & Spruengli AG and Hershey Co. to caution consumers that they cannot rule out even more price increases in the future, on products which have already seen multiple price hikes due to inflation.
Paul Joules, a cocoa analyst at Rabobank in London said, “We clearly are in a very tight situation. We could see chocolate companies adopt smaller chocolate bars and potentially higher prices.”
Ivory Coast, the biggest cocoa producer in the world is forecast to see their next harvest cut by almost one fifth compared to last year. In response it has suspended sale contracts which lock farmers into specific delivery times in the future. It is expected that Ghana, the second-largest cocoa producer in the world, will see output fall well below the average historically.
According to Jules, it is expected that will produce the third consecutive deficit in supply this year, and possibly it will persist into 2024. More over, just at farmers are attempting to deal with an outbreak of swollen shoot virus, a crushing pathogen can kill entire trees within just years, and an outbreak of black pod disease, which causes beans to spontaneously begin rotting, now an El Niño weather pattern is threatening to reduce production even further.
The pandemic generated a reduction in demand for chocolate globally, which led to a surge in cocoa stockpiles. However recovering consumption has now met two years of production shortages, and significantly reduced those stockpiles.
In response, Lindt announced this week that it has begin to build up its cocoa bean stocks, to buffer against the higher prices, and prevent the shortages from reducing production. Lindt and Barry Callebaut AG, another chocolate producer have seen sales volumes suffer under reduced demand due to consumers shifting spending to necessities, and higher prices for their products.
Analysts note the effects of soaring wholesale costs may not be affecting some companies yet due to hedging activity they engaged in previously which has shielded them from current price hikes.
In an earnings call on Tuesday, Lindt’s Chief Financial Officer Martin Hug said, “For most players, the impact of the very steep cocoa future prices increases will only kick in from the second half of 2023,” leading some to “therefore most likely feel a need to adjust pricing.”
