Global cocoa prices have reached a new peak due to dry weather adversely affecting crops in West Africa. On Thursday, cocoa prices hit a record high of $5,874 (£4,655) per ton on the New York commodities market.
The essential chocolate-making ingredient’s cost has approximately doubled since the beginning of the previous year. The surge in cocoa prices is affecting consumers and putting pressure on major chocolate manufacturers.
Hershey, one of the world’s largest chocolate makers, cautioned that “historic cocoa prices are expected to limit earnings growth this year.” The company’s CEO, Michele Buck, did not rule out the possibility of raising prices for customers, stating they would utilize various strategies, including pricing, to manage the business in light of current cocoa prices.
Hershey’s financial results for the last quarter of 2023 revealed a 6.6% decrease in sales as inflation-induced consumer cutbacks impacted confectionary spending. Another major player, Mondelez, which owns the Cadbury brand, acknowledged rising ingredient costs as a forthcoming challenge, citing significant increases in both cocoa and sugar prices.
The UK experienced a notable surge in chocolate prices during the festive season, with some boxes seeing a minimum 50% increase in price within a year, as reported by consumer group Which?. Despite an overall supermarket food and drink inflation rate of 8.3% in November, chocolate prices rose sharply at 15.3%.
The primary driver behind the escalating cocoa prices is poor harvests in West Africa, responsible for the majority of the world’s cocoa supply. Adverse weather conditions caused by the El Niño phenomenon, leading to drier conditions in Ghana and Ivory Coast, the world’s top cocoa bean producers, contribute to the current market situation.
Analysts, including Jack Scoville from Price Futures Group, express concerns about potential further production shortages exacerbated by El Niño’s impact on West Africa’s crops, leading to hotter and drier weather conditions.
These weather conditions, influenced by the El Niño phenomenon, are heightening fears of another year of insufficient cocoa production. The threat posed by hot and dry weather to West Africa’s crops has intensified traders’ concerns. Jack Scoville, an analyst at Price Futures Group, remarked, “Traders are worried about another short production year, and these feelings have been enhanced by El Niño that is threatening West Africa crops with hot and dry weather.”
The ramifications of the soaring cocoa prices are reverberating across the chocolate industry, affecting both manufacturers and consumers. Hershey’s caution about limited earnings growth reflects the challenges companies face in maintaining profitability amid escalating raw material costs. The CEO’s acknowledgment of employing “every tool in our toolbox, including pricing,” underscores the strategic measures being considered to navigate the impact of rising cocoa prices.
Beyond Hershey, other major players like Mondelez are also grappling with the adverse effects of increased ingredient costs, particularly cocoa and sugar. This trend is indicative of a broader challenge within the industry, where companies are contending with the need to balance maintaining product quality, meeting consumer demand, and addressing the financial implications of surging input costs.
The situation is not confined to the corporate realm; consumers are feeling the pinch as well. Reports of substantial price hikes for festive chocolate boxes in the UK underscore the direct impact on end-users. The notable discrepancy between the overall inflation rate and the sharp rise in chocolate prices further emphasizes the specific challenges faced by the confectionary sector.
As cocoa prices continue to hit unprecedented highs, the chocolate industry must navigate a delicate balance between maintaining profitability and ensuring the accessibility of their products to consumers. The broader implications of climate change on cocoa harvests, coupled with immediate weather challenges like El Niño, underscore the complex and interconnected factors influencing the global cocoa market. In the coming months, stakeholders in the chocolate industry will closely monitor developments, seeking innovative strategies to adapt to these dynamic and challenging market conditions.