The cocoa market (predictably) upside down

onze boeren, Chocolade, Cacao origines, Chocolatemakers, Living Income, Biologisch

The newspapers are full of it and the cocoa industry is in turmoil. Never before has the price of cocoa on the world market been as high as it is right now. As we write this, the price sits at nearly US$10,000 per ton of cocoa, a record high. And there seems to be no end in sight for the time being.

But what does that mean? Why has the price risen so much? And who is earning from this? Does that money get to the farmers? And what does this mean for Chocolatemakers, considering we have always paid our farmers a living wage? We explain it all in this article. 

Why these price increases?

More than 75% of the world's cocoa comes from West Africa, especially Ghana and the Ivory Coast. When something goes wrong there, the world market suffers immediately. In these cocoa regions, huge tracts of rainforest have been cleared to plant cocoa monocultures instead. By definition, a monoculture is always more vulnerable because the lack of biodiversity also means a lack of protection. Extreme weather and disease have free rein because these plantations are not protected by a natural ecosystem. In this case, the interplay of a number of factors is causing the current price increases:

- Wars. The wars in Ukraine and Palestine have greatly disrupted supply chains. Here it is not only the transport of cocoa, but also the transport of fertilizer. Indeed, that is what monocultures and the non-organic sector are completely dependent on.

- Long-term and structural problems. There has been no or insufficient investment in cocoa plantations and agriculture for a very long time. Not very surprising when a farmer earns $1 a day and has to put his children to work. Cocoa plants can live up to 100 years, but the time frame in which they produce cocoa fruit is only about 25 years. Planting new trees costs money, and the farmers simply don't have that money because they get paid so little. The last time very many cocoa trees were structurally planted was around 2000. These trees are now old, vulnerable and the soil is no longer very fertile. We keep saying it, it all starts and ends with paying farmers well.

- Extreme weather. Both extreme drought and also torrential rain have severely damaged the crop in recent years, as was the case in 2023. The rain caused flooding in some areas so that the cocoa that could be harvested could not be transported in time. This, of course, is closely related to the problem of monocultures and poorly maintained plantations.

- Diseases. The rain has contributed to the spread of two diseases. The black pod disease and the swollen shoot virus. In Ghana alone, this has destroyed more than a fifth of the crop.

So there is a deficit, the largest deficit ever. One the reasons for this deficit are not easily solved in the short term, only structurally. Paying farmers well is the most important part of this.

How does the world market for cocoa actually work? And for whom?

Just to be clear right away: we do not buy our cocoa on the world market. We trade directly with farmers and farmers' cooperatives. The huge price increases take place in so-called commodity trading, where basically all major chocolate brands source their cocoa. Cocoa is a commodity that, like oil, sugar and other raw materials, is traded primarily on the world market. This is done on the New York Mercantile Exchange (NYMEX) and on the Intercontinental Exchange (ICE) in London. 

So what is happening now involves hedge funds and investors betting billions on cocoa prices rising further. The Financial Times reports that Hedgefunds have bet 8.7 billion on cocoa prices rising further, throwing extra oil on the fire. These are also immediately the big winners in this scenario. A few hedge funds will make a fortune. Some of the middle-men parties who sit between the farmers and the world market will make just as good a profit.

The chocolate makers who must buy the cocoa to produce chocolate must raise their prices to compensate for the vastly increased costs. Not insignificantly, the price for the second main ingredient, sugar, has also gone up tremendously. This is all happening at a time after the prices for chocolate have already increased dramatically once fairly recently following Covid. With these further price increases, all chocolate producers are facing major problems.

The consumer will eventually have to pay, including in quality. The price will have to go up, the weight down (shrink flation) and the ingredient list will also change very quickly. More palm oil and other cheap fats will be used to replace cocoa butter.

What about the farmers? Are they finally earning more?

Yes, BUT. Ghana, Cameroon and also the Ivory Coast have slightly increased the prices the farmers get. Ghana by two-thirds which comes out to US$1,837 per ton of cocoa, in Cameroon finally US$2,500 per ton ends up with the farmers and in Ivory Coast where 40% of all cocoa comes from US$1,630 ends up with the farmers per ton of cocoa. That is a 10% increase while the price on the world market has increased fivefold.

If money was the only variable, then still: the money ends up in other pockets. And the farmers will still not earn a livable income. They will still have to put their children to work, and they will still have no money available to invest in the plantations.

But money is not the only variable in the formula. Because the harvests were bad. And then farmers may get at least more money per ton of cocoa now, but they produced fewer tons of cocoa. So some still have less to spend than before.

Big Cocoa = Big Problem

For Chocolatemakers, the quality of the cocoa is crucial. We do not add large amounts of sugars and flavor enhancers. You will always be able to taste the quality of the cacao in our chocolate. And that quality comes from well-paid farmers who can take good care of the plantations and invest in the land they live and work on. 

Big Cacao Doesn't Care. Cacao quality doesn't matter much when huge amounts of sugars, inclusions and flavor enhancers are still eventually added. The cacao giants have no direct contact with farmers, can't trace their cacao back, don't invest in the land and buy from middlemen.

What about Chocolatemakers? 

Everything we have explained above boils down to one simple truth: big cocoa is not a sustainable business model. Exploiting land and people, when you actually depend on land and people for your product has an expiration date. That's a fragile and vulnerable business model that may make a lot of money in the short term, but has big risks in the long term. That has now exploded, and it was a long time coming. 

We deal directly with farmers and farmers' cooperatives. We make agreements about paying farmers a livable income, but also about how nature is treated. We not only help protect nature, we actively restore huge tracts of degraded land and turn it back into biodiverse rainforest.

The plantations we work with are better protected from disease and weather because of biodiversity. Farmers are protected by a livable income. And we invest in new trees and in keeping the entire ecosystem healthy.

For now, we should not raise prices. We are not part of the broken system called commodity cocoa. And our farmers have healthy plantations that will last a long time. Of course, global warming does not make a difference between countries and areas, it will affect all of us, and we too will have to plan with the farmers for the changes that are coming, and may have to make small price changes in the future. But for now, we hope this is a wake-up call for the entire industry. 

We are happy to be available for advice, should other chocolate makers want help getting their business model healthy. The real impact comes only when we all get it right!