The latest RaboResearch report has been released, showing the global cocoa shortage is resulting in the sector’s highest commodity prices for 50 years – putting pressure on chocolate producers and consumers alike.
In March, the food and agribusiness banking specialist shared data showing retail chocolate prices were up 8.8 per cent on the previous year, with the global price of cocoa having increased more than 200 per cent (in Australian dollar terms) in the same period.
The unprecedented crisis in cocoa production has primarily been driven by factors such as the swollen shoot virus and soil degradation, and has significantly affected key cocoa-producing countries.
RaboResearch states the main impact of the cocoa crisis still lies ahead, as companies hedge prices and supply contracts up to a year in advance. Significantly higher chocolate prices will likely hit shelves over the coming months and going into 2025, providing a major challenge for the chocolate sector, which is already battling a longer-term, structural decline in demand.
Meanwhile, more challenges lie ahead, with the upcoming EU regulation on deforestation expected to exacerbate cost and supply issues.
Cocoa shortage crisis
Since January 2023, cocoa futures have shattered the calm of their previous trading range, peaking at nearly US$12,000 (~$18,000) per metric ton in the first half of 2024.
This increase is primarily due to a disappointing harvest in West Africa, the source of 70 per cent of the world's cocoa. The International Cocoa Organization (ICCO) reports a 14.2 per cent drop in global cocoa production for the 2023/24 season, leading to a shortage of approximately 462,000 metric tons and the lowest cocoa stocks in 22 years.
RaboResearch consumer foods senior analyst, Julia Buech, said chocolate manufacturers are struggling with soaring cocoa costs, which European retail prices are beginning to reflect.
“However, the full force of the cocoa crisis is yet to be felt on supermarket shelves. Due to the lag in the supply chain and existing contracts, the steepest price hikes are anticipated in the second half of 2024 and into 2025,” said Buech.
This will inevitably lead to higher prices for consumers, particularly for dark chocolates with higher cocoa content.
Countering rising prices
To combat rising costs, chocolate manufacturers are turning to strategies like shrinkflation – i.e., reducing package sizes while maintaining prices – and skimpflation – i.e., altering recipes to use less cocoa and more fillers. These tactics, while effective, are often unpopular with consumers.
Consumers are likely to alter their buying habits, switching between chocolate types and brands, and potentially moving toward private labels or alternative treats.
“The increased cost of chocolate is expected to lead to a significant drop in consumer demand. This necessary market correction will balance the cocoa supply shortage and stabilise prices,” said Buech.
“The chocolate sector is already facing a structural shift away from sweets, with volume sales declining in recent years. The current crisis adds to the challenges, making a return to significant growth unlikely in the near future.”
A decline in chocolate volumes in the mid- to high-single digits is projected for western European markets, becoming more apparent in 2025.
Nutrition and ingredients companies, such as Kerry, have launched cocoa replacement solutions as an alternate response to these issues.
EUDR expected to exacerbate issues
While cocoa prices may stabilise with the new autumn crop in late 2024, the upcoming EU regulation on deforestation (EUDR) will introduce new challenges. Set to take effect at the end of 2024, the EUDR will prohibit the sale of commodities, including cocoa, sourced from deforested areas. This regulation will have a significant impact on the cocoa industry, given Europe's substantial share of global cocoa imports.
Although companies such as Cadbury are making chocolate locally, the OEC reported that Australia imported $472 million in chocolate in 2022, particularly from European countries such as Germany and Italy.
