Navigating Cocoa Disruptions to Build Resilience

A major cocoa shortage in 2024 has raised concerns across industries reliant on the commodity. Shifts in weather patterns induced by climate change have disrupted cocoa cultivation, resulting in lower yields. The scarcity has major implications for processors and chocolatiers heavily dependent on cocoa production, particularly amid expectation for strong demand growth. The cocoa prices are likely to remain elevated, hovering at USD 6,800–7,000/MT in 2H24 and USD 6,000/MT in 2025, and a return to 2023 pricing levels is not anticipated for the next 3–4 years. Procurement organizations across end-use industries must mitigate supply chain risk by scouting alternate sourcing geographies, exploring cocoa-free alternatives, and leveraging potential value chain opportunities.

The prices of cocoa touched new records in 2024, reaching USD 4,441/MT at the start of the year and skyrocketing to USD 10,215/MT in April 2024. The historical highs in 2024 have resulted in a 2.3x price surge during the year, making cocoa more expensive than copper in the commodities market. The primary factor driving this price hike is the global shortage of cocoa beans, exacerbated by poorer-than-expected harvests in the Western African countries of Ghana and Ivory Coast. Simultaneously, climate change and desertification have reduced the available land suitable for cocoa cultivation, while demand for cocoa continues to grow rapidly.

Supply chain disruptions leading to cocoa shortage

High supply chain dependencies coupled with production decline in Africa

Ghana, Ivory Coast, Nigeria, and Cameroon together produce more than 75% of the world’s cocoa. The processors of cocoa into cocoa mass, cocoa butter, cocoa powder, chocolate, and other cocoa products across Europe (leading processor: 35% share), APAC, and the Americas are highly dependent on the African supply. 

Cocoa production in Ivory Coast and Ghana has declined sharply by 448 KT (down 20%) and 467 KT (down 45%), respectively, over the past three seasons, contributing to the current shortfall in global cocoa production and eventually leading to the price surge. 

Changing weather conditions and crop diseases

Major cocoa producing nations, including Ghana, Ivory Coast, Nigeria, and Cameroon, have experienced significant declines in crop yields due to droughts, fires, and climate change. 

The El Niño weather pattern, which brought unusually heavy rainfall in December last year, triggered a widespread outbreak of black pod disease, severely affecting the crops. Additionally, the ongoing impact of climate change and the persistence of El Niño resulted in extreme heat in the subsequent months, further hindering the harvests.

Aging trees and diminishing arable land

Aging cocoa trees have also been largely contributing to lower harvests, as they are more vulnerable to disease. This implies they are high on maintenance, forcing multiple farmers to abandon old cocoa trees/farms for greener pastures.

The rise in unlicensed mining activities in West Africa, driven by rich deposits of metals and minerals like gold, uranium, and iron ore, has led to extensive deforestation and loss of arable land. This environmental degradation and declining water quality have further diminished cocoa production over time.

Rising financial troubles for cocoa producers

Farmers are not seeing corresponding benefits due to higher production costs and lower yields despite the increase in cocoa prices. Consequently, many are opting to sell their cocoa farms and lands to mining companies.

Chocolate producers often trade cocoa futures, locking in cocoa bean prices well before the harvest to mitigate the risks of price volatility. However, this practice often leaves farmers vulnerable, as they may receive lower payments for their produce if prices rise beyond the futures market predictions. This financial instability has resulted in minimal reinvestment in aging plantations, further exacerbated by considerable regional inflation and currency devaluation in the region.

Continued elevated demand adding to price pressure

Strong demand from processors/end-use industries

Despite global supply challenges, the results for cocoa grinding across North American, European, and Asian regions were better than anticipated. North America, in particular, recorded a 3–4% increase in grinding volumes, contrary to expected declines. This strong performance highlights robust demand and indicates increased pressure on the already limited cocoa supplies. Reflecting this demand, cocoa prices surged, hitting USD 10,000+/MT in May 2024. 

The supply-demand mismatch is projected to leave the market with a deficit of 374 KT this season, up from 74 KT last season. The interplay between reduced supply and stable or increasing grinding volumes underscores significant market pressure, underscoring the urgent need to closely monitor supply and demand trends in the cocoa industry. 

Companies passing the pressure

Chocolate brands are struggling with higher cocoa costs, often passing this burden onto consumers through price hikes. In Europe, Mondelēz raised prices by 12–15%, while Mars increased prices by 15% in the US. Key companies such as Lindt and Toblerone have already raised prices for their popular chocolate bunnies and eggs by approximately 50% compared to 2023. 

Manufacturers such as Hershey’s are encouraging the sales of non-cocoa products, such as its cookies and cream range, gummy bears, and other candies, to offset the higher chocolate prices.

Steps ahead – Mitigation strategies

Procurement organizations within chocolate and cocoa-dependent industries are carefully reassessing their strategies amid the cocoa shortage and soaring prices. Some of the potential mitigation strategies that companies are actively deploying to build resilience are mentioned below.

Building supply chain resilience

Since weather and fungal diseases have damaged existing trees across West Africa, potentially leading to a mid-to-long-term impact, companies including cocoa processors are seeking alternative sources for cocoa to secure future supplies. Key alternate sources include the following: 

• Indonesia and Papua New Guinea are the key cocoa producers in Asia with >200 KT production. 
• Brazil in South America is another major cocoa producer with ~220 KT of production.

Scouting for cocoa alternatives

Companies have started scouting for close alternatives such as plant-/regenerative-based substitutes, cocoa butter equivalents, extenders, and artificial flavors to develop cocoa-free products, synthetic chocolates, and so on. Key examples include the following:

• Voyage Foods has partnered with Cargill to develop sustainable alternatives to cocoa. 
• Planet A Foods has partnered with Meiji to develop chocolate with cell-cultured cocoa powder. 
• Nukoko, a UK-based company, is scaling up its technology to produce chocolate from fava beans.

Value chain intervention 

Companies are exploring value chain intervention opportunities by leveraging partnerships to support cocoa cultivation, improve the cocoa community's well-being, and maximize market price transfer. Key examples include the following:

• Unilever is partnering with cocoa farmers to rebuild communities and secure the cocoa supply chain. 
• Nestlé has partnered with Cargill and ETG/Beyond Beans to regenerate land for cocoa farms. 
• Berry Callebaut’s Forever Chocolate initiative plans to uplift 500,000 cocoa farmers and establish a sustainable direct supply chain.

Conclusion

The chances of mid-crop reversing the current market deficit are very slim since 80–85% of the cocoa production for the current season has been harvested already. Forecasts hint at a potential softening of cocoa prices to USD 6,800–7,000/MT for 2H24 and USD 6,000/MT in 2025, though relatively low crop yield could limit the softening.

This projection underlines the urgency for manufacturers to adapt their strategies to build supply chain resilience by exploring alternate geographies, scouting for cocoa-free alternatives, and evaluating potential value chain intervention opportunities.