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African cocoa shortage sparks global chocolate crisis - Reuters
News Desk

News Desk

14 March 2024

African cocoa shortage sparks global chocolate crisis - Reuters

According to Reuters, four trading sources have reported that major cocoa plants in Ivory Coast and Ghana have halted or cut processing due to financial constraints in buying beans, potentially causing a significant increase in chocolate prices globally. Chocolate manufacturers have raised prices for consumers due to three consecutive years of low cocoa harvests in the two countries responsible for nearly 60% of the world's cocoa production, with a fourth poor harvest anticipated, causing cocoa prices to more than double over the past year. Chocolate producers rely on processors to turn raw cocoa beans into butter and liquor for chocolate production. However, processors claim they cannot afford to buy the beans. Transcao, a state-controlled Ivorian bean processor, has stopped purchasing beans due to pricing concerns. Without disclosing operational capacity, the company continues processing from existing stock. Meanwhile, two industry sources, speaking anonymously, said the plant is nearly idle. One of the two sources mentioned that additional major state-run plants in Ivory Coast, which is responsible for nearly half of the world's cocoa, could shut down soon. The same two sources also reveal that Cargill struggled to source beans for its major processing plant in Ivory Coast, leading to a temporary halt in operations last month. Reuters approached Cargill for a comment, but the company declined to provide one on the matter. In Ghana, the second-largest cocoa producer, most of its eight plants – including the state-owned Cocoa Processing Company (CPC) – have intermittently suspended operations for weeks since the season started in October, two separate industry sources told Reuters. CPC stated it is currently operating at approximately 20% of its capacity due to the bean shortage. The surge in prices has disrupted the established global cocoa trade mechanism, where farmers sell beans to local dealers who then supply them to processing plants or global traders. These traders subsequently sell beans or cocoa products – such as butter, powder and cocoa liquor – to global confectionery giants like Nestlé, Hershey and Mondelēz. Under normal circumstances, the market is heavily regulated, with traders and processors purchasing beans from local dealers up to a year in advance at pre-arranged prices, while local regulators set lower farmgate prices for farmers. However, during shortages like the current year, the system breaks down. Local dealers often pay farmers a premium above the farmgate price to secure beans, subsequently selling them on the spot market at higher prices instead of fulfilling pre-agreed prices. Global traders are rushing to buy beans at any price to meet their obligations with chocolate firms, often leaving local processors with shortages. Ivorian and Ghanaian authorities usually protect local plants by offering them cheap loans or by limiting the amount of beans that global traders can buy. However, this year, plants are not receiving the cocoa they ordered and cannot afford the higher spot prices. Consequently, chocolate makers have already raised prices. US retail stores charged 11.6% more for chocolate products in 2023 than in 2022, as shown in data from market research firm Circana.

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