GHANA/IVORY COAST – The world could see further increases in chocolate prices as concerns mount over a potential cocoa crop shortage in Ghana and Ivory Coast, the top cocoa-producing regions.

Meanwhile, Cocoa prices have surged approximately 47% in the past year, driven by concerns over adverse weather conditions and crop diseases affecting Ivory Coast and Ghana, which together constitute two-thirds of the world’s cocoa supply.

The looming El Niño weather phenomenon adds to the apprehension, and analysts predict a third consecutive global shortage for the new season that is commencing, potentially resulting in continued inflation in the chocolate sector.

Major chocolate manufacturers like Hershey Co. and Lindt & Spruengli AG previously cautioned about potential price hikes indicating that increased prices are affecting demand in both Europe and the vital growth market of Asia.

“The current situation is looking relatively dire unless there is a dramatic improvement in the outlook. Further price increases could weigh on consumption,” Darren Stetzel, Vice President of Soft Commodities for Asia at broker StoneX, noted.

Notably, New York cocoa futures reached a 12-year high in mid-September, nearly reaching a price last seen in 1979.

The surge was fueled by excessive rainfall, pest infestations, and crop diseases affecting West African cocoa crops. The key question revolved around the size of the larger of the two annual cocoa harvests, which have recently commenced in Ghana and are beginning in the Ivory Coast.

Ivory Coast had previously forecasted a nearly 20% decrease in output from the main-crop season running from October 1 to March, but the final figures might vary as some farmers held back supplies from the smaller mid-crop in anticipation of higher prices in the new season.

Rabobank and Marex analysts anticipated a drop in West African cocoa output for the 2023-24 season, with Marex projecting a global deficit of 279,000 tons, surpassing the combined shortfalls of the previous two seasons.

Agricultural inputs like fertilizers and pesticides were also revealed to become scarcer and more expensive for African cocoa farmers, many of whom live below the poverty line.

The situation impeded efforts to rejuvenate or treat damaged cocoa trees and address the swollen-shoot disease which poses a significant threat to Ivory Coast’s cocoa output, affecting approximately 20% of the nation’s crop.

On the other hand, despite the listed challenges, Ghana has boosted cocoa farmer pay by over 60% to curb smuggling into Ivory Coast and encourage investment.

This may lead to increased production in Ghana. However, ageing cocoa trees in the country may contribute to a declining production trend.

The cocoa market’s tight supply chain has resulted in reduced processing of cocoa beans into confectionery products globally. High cocoa prices are beginning to impact demand in Asia, and Swiss grinder Barry Callebaut AG reported lower sales in July.