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The price of sugar and cocoa has surged in recent years, owing to the frequency of extreme weather patterns caused by climate change, as well as regional conflicts and global inflation, among other events. Nidhi Jain, associate specialist at The Smart Cube, explains why the price of these raw ingredients continues to spike, and offers her predictions for the near future of both markets.

In April 2023, prices of raw sugar and cocoa touched eleven-and-a-half-year and seven-year highs, respectively. Sugar prices rose by over 17% month-over-month (MoM) from March to April, owing to the decline in sugar production in key producing countries, such as India, the EU, Mexico and China.

For instance, output in India – the second-largest global sugar producer – is on track to fall by 11% year-over-year (YoY) for the marketing year 2022/23. In the EU, China and Mexico, the commodities output is predicted to decrease by 9.7%, 6.3% and 13% YoY, respectively. Further, the US Department of Agriculture projects global sugar ending stocks to fall 16.7% YoY in the marketing year 2022/23, reaching a ten-year low of 39.4 million tonnes. Stocks are expected to deplete further, to 33.4 million tonnes the following year. Meanwhile, according to the International Cocoa Organisation, the cocoa market is currently facing a supply deficit as global ending stocks of the commodity are forecasted to fall 3.5% YoY in the 2022/23 marketing year. Ivory Coast, the leading cocoa producer, is projected to witness a 25% YoY fall in its mid-year cocoa crop. This saw global cocoa prices rise by just over 5% from March to April. Why prices have skyrocketed Looking at sugar, the commodity has been impacted significantly by variable weather conditions in its largest producing nations. In India, the recent fall in sugar production can be attributed to lower yields, as key producing states such as Maharashtra were affected by unseasonal rain. This resulted in a decline in the availability of sugarcane, causing mills around the country to close earlier in the year than usual.

Elsewhere, sugar output in China – the top sugar consumer globally – is also declining due to dry weather in the key sugarcane-producing region of Guangxi. Meanwhile, in Brazil, logistical bottlenecks and supply chain issues restricted sugar shipments from the country in April, while inclement weather conditions in the South American region have delayed sugarcane crushing. In terms of cocoa prices, these have witnessed a fall owing to hot and dry weather in cocoa-producing countries, such as Ivory Coast and Ghana. Additionally, the arrival of cocoa beans from farms to Ivory Coast ports fell 7% YoY from 1 October to 7 May, while the quality of cocoa beans may be jeopardised due to a lack of fertiliser and pesticide availability as continued sanctions on Russia – the largest fertiliser exporter – has limited imports into West Africa. Moreover, an increase in cocoa grindings in Asia and Europe (up 4.2% and 0.5% YoY, respectively, in the first quarter of 2023) denoted firm demand for cocoa.

Prices set to remain high in short-medium term Sugar and cocoa prices are not expected to retreat from their current highs in the immediate future. This is due in part to weather uncertainty adding to the bullish pressure. According to the National Oceanic and Atmospheric Administration, El Niño conditions are likely to develop within the next couple of months, with the probability of this persisting into the winter period greater than 90%. The weather phenomenon has the potential to reduce the supply of key food ingredients, including sugar and cocoa. This is because El Niño causes increased rainfall in regions such as South America, southern US and Mexico, and lower levels of rainfall and droughts in Australia, parts of southern Asia, and West and Central Africa. As such, the hot and dry conditions in West Africa are projected to reduce cocoa output in Ghana and Ivory Coast – two of the largest cocoa-producing nations in the world. What’s more, the excessive rains forecasted in Brazil the world’s largest sugar producer, are likely to lead to lower sucrose content in sugarcane and cause flooding in fields, disrupting harvest and negatively affecting sugar output.

Adding to this, India is set to restrict its sugar exports amid lower-than-anticipated production caused by dry weather conditions and European farmers may reduce sugar beet plantings in 2023 after the ban imposed in January on neonicotinoid pesticide usage. As episodes of El Niño typically last nine to 12 months, the weather event is expected to impact the short- to medium-term. However, in some instances, they can persist for years, meaning this fall in output and subsequent high prices may be here to stay for the foreseeable future.

Impact on the confectionery industry From chocolate bars to hard-boiled sweets, both sugar and cocoa comprise key ingredients for the vast majority of confectionery products. Therefore, the anticipated ingredient price increases will impact the input costs of confectionary items, increasing the cost for end consumers.

For example, sugar accounts for around 7% of the total raw material cost in a chocolate muffin, with cocoa’s cost share an estimated 20%. As such, the product’s price is likely to increase off the back of its key ingredients rising in cost. Overall, short- to medium-term supply constraints are anticipated to keep both sugar and cocoa prices high. Nevertheless, there is the possibility that these price hikes continue for the long term, especially should the El Niño weather phenomenon persist for an extended period of time.