Confections

Higher Chocolate Prices May Follow Africa's Cocoa Shortfall


Ivorian workers empty bags of cocoa beans set for export

Photograph by Issouf Sanogo/Getty Images

Ivorian workers empty bags of cocoa beans set for export

This Valentine’s Day, Americans will spend a record $1.05 billion on chocolate and candy, according to the National Confectioners Association. But while Mamert Kablan Angora helps keep sweethearts sweet by growing cocoa on part of the 15 hectares (37 acres) of Ivory Coast land his family has farmed for generations, his 31-year-old son with the same name prefers an office job in the nation’s biggest city. “I have seen my parents suffering in hoping that days will be better in growing cocoa, but the situation is deteriorating year after year,” says Mamert’s son, who works at an import/export firm in Abidjan, where he can use his master’s degree in business. “Cocoa can no longer allow someone to take care of oneself or of a family.”

Villagers in West Africa, which produces 70 percent of the world’s cocoa, are abandoning the crop because its price is volatile, farms are too small to be economical, yields haven’t risen for decades, and alternative crops such as rubber are more lucrative. “Everybody is worried that the farmer is living on the edge of poverty,” says Barry Parkin, the head of global procurement and sustainability at Mars, whose products include M&M’s, the best-selling chocolate candy in the U.S. “They produce half a ton per hectare of cocoa, and it has been that way forever. All major agricultural products have improved their yields by a factor of 5 to 10 in the last 50 years, and cocoa hasn’t.”

The chocolate market expands by 2 percent to 3 percent a year, according to Zurich-based Barry Callebaut (BARN:SW), the world’s biggest maker of bulk chocolate. Cocoa supplies, though, have lagged demand in 10 of the past 20 years, according to data from the International Cocoa Organization in London. The ICCO forecasts a shortfall of about 50,000 tons for the annual season, which began in October. And Parkin at Mars reckons demand will outpace production by 1 million tons by the end of the decade.

That means your chocolate kisses may cost more next Valentine’s Day. To deal with more frequent cocoa shortages, confectioners have been shrinking the size of chocolate bars and bon bons, adding more air bubbles to chocolate, or simply substituting more vegetable oil for cocoa butter. They also can pull from global stockpiles, which stood at 1.8 million metric tons as of Sept. 30, according to the International Cocoa Organization. But experts say it will be tougher to cope beyond 2020 without improved production.

“You must start with that core fundamental of improving cocoa yields, improving productivity on the farm … to build sustainable year-after-year strong crops that are more disease-resistant, that provide more pods per tree,” says Tim Cofer, European president of Mondelēz International (MDLZ), the world’s biggest chocolate company, with a 15 percent market share. Mondelēz sells more than $1 billion of Milka and Cadbury Dairy Milk bars a year.

Cocoa is hard to grow, and the trees don’t start producing until three to five years after being planted. Also, climate change threatens to make farming it even more challenging. The crop needs hot, humid conditions, with temperatures no lower than 18C (64F) and no higher than 32C, according to U.K. risk advisory firm Maple-croft. Temperatures in growing regions of Ivory Coast and Ghana, the second-biggest producer, are forecast to rise as much as 2C by 2050, while the optimum growing altitude will be 450 to 500 meters (1,476 to 1,640 feet) above sea level by then, compared with 100 to 250 meters now, according to the International Center for Tropical Agriculture.

Mondelēz says it will invest $400 million in the next decade to help growers raise yields and improve incomes. Barry Callebaut will spend 40 million Swiss francs ($44 million) in the same period to train farmers and help double yields. Blommer Chocolate, the largest U.S. cocoa bean processor, and Singapore-based trader Olam International (OLAM:SP) last year formed a joint venture to invest $12 million to raise yields by 2015. And candy giant Nestlé (NESN:VX) will invest 110 million Swiss francs in cocoa science and sustainability initiatives from 2010 to 2019.

Due to shortages and political instability, cocoa prices experienced annual swings of more than 20 percent in 10 of the past 20 years. Prices were below $1,000 a ton in the early 1970s and more than tripled by the end of that decade. By 1989 they were again below $1,000 a ton. Cocoa climbed to a 32-year high in 2011 but has since fallen 74 percent. After peaking at more than $2,700 in September, the price has slumped 18 percent to about $2,220. “The volatility of cocoa prices is one of the reasons we are facing this situation,” says Jean-Marc Anga, the ICCO’s executive director. “Some farmers have left cocoa and gone into rubber, palm oil, and other commodities. Unless you find a sustainable solution, you are not going to attract these people back into cocoa and keep them there.”

The bottom line: The global chocolate industry is girding for shortages of its key raw material, cocoa. Its price has fallen more than 70 percent since 2011.

With Baudelaire Mieu
Almeida is a reporter for Bloomberg News in London.
Monnier is a reporter for Bloomberg News in Abidjan.

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Companies Mentioned

  • BARN:SW
    (Barry Callebaut AG)
    • $1182.0 CHF
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  • MDLZ
    (Mondelez International Inc)
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