Cocoa Crisis vs The Future

The chocolate industry is in tremendous crisis with reduction in supply and increasing demand. We are hearing many things like crop failure due climate change and decease in primary cocoa producing countries like Ivory Coast and Ghana. But there are so many other factors which are impacting cocoa production across the world.

Let’s understand the past first and foremost to get a view on why this situation has come and how it will be in future. Cocoa was native to Southern American forests where it grew tropical rain forests. Mayans and other prevalent cultures were one of the first to harvest cocoa and was considered as food of gods. When Spaniards arrived in South America, they brought the cocoa to Europe where they held monopoly on cocoa supply till mid-1600s. the chocolate bars as we know it were not in the market nor created at that time. In 1847, the first chocolate bar was created by a British confectioner Joseph Fry which became an instant hit. In 1900s Cadbury launched various products and evolved over time.

In 1800’s Cocoa plantations were introduced in Africa by Portuguese. Over time Africa became the largest producer of cocoa supplying more than 60% cocoa to the world. With chocolate being in high demand you would expect the cocoa growers to make good money. No, they weren’t. Chocolate manufacturers made billions of dollars, but farmers made little. Even though large companies market their products as being made from sustainably sourced cocoa, the reality is different. Even though West Africa is the largest producer of cocoa there were no new plantations in the two decades. With aging existing plantations and no new plantations to replace them the situation was getting worse year on year. Farmer started opting for much more lucrative crops like rubber, palm oil etc.

The Crisis

As the market saw a rise in the chocolate industry, the world’s largest cocoa growing countries did not see difference in their financial growth. Everyone might think the crisis started in the early months of Jan, but it started a long time back with farmers started growing other commercial crops instead of investing in new plantations of cocoa. With climate changes due to El Nino effect and decease (Black Pod) the cocoa production has reduced drastically over months and real effect started showing during month Jan 2024. With no new plantations and reduced production from existing plantations the situation became worse.

Traders who used to buy cocoa from farmers were not able to procure them in time and competition to procure as much cocoa available has spiraled the cocoa prices like never seen before. The situation is better for farmers as they are getting better prices for their crops, and it should be welcomed and continued.

Light Across the Tunnel

Cocoa has become an important ingredient for non-food and beverages industry as well where cocoa extracts like cocoa butter are used in cosmetic industries. With this the cocoa production has become an important topic for other regions of the world as well. With the growing demand for cocoa, it has been introduced to many agricultural economies in ASIA. Countries like Philippines, India, Vietnam, Sri Lanka, Thailand have new and growing cocoa plantations. But it will take at least a decade to replace Africa with the cocoa from ASIA due to the sheer size of the production in Africa. This change is needed as dependence on one region will lead to single point of failure for the industry.

The Solution

There is no one silver bullet to address the current cocoa crisis. The solution should be long-term and sustainable. The following are some thoughts of what we think should happen:

1. Real Sustainable Sourcing: Companies should invest in sustainable sourcing of cocoa by removing the intermediaries or traders. This will help them pass on the cost benefits to the farmers. Fair prices have to be paid to the farmers to sustain the motivation to grow and expand cocoa production.
2. Strengthen Relationship with Farmers: It is important to start building long-term relationships with farmers. Companies should invest in training farmers in technologies and methodologies to improve production yield, world class fermentation processes, introduction of new varieties of cocoa and value addition activities to cocoa for better commercial gains.
3. Invest in Cocoa Plantations: To many farmers cocoa is something unknown. When companies invest in education and free saplings supply it will be beneficial in the long-term to avoid situations like current crisis. Companies can also invest in their own plantations by leasing out large swaths of land under long-term lease agreements.
4. Educate the Consumer: Education of the consumer on the complete ecosystem of chocolate making is important. This will help them understand the process and hardships in making their favorite chocolate bar or confectionery. Consumers will always understand and will spend more money on a quality product.
5. Government Involvement: Governments should also take actions to benefit the cocoa growers. Supplying free cocoa saplings, subsidies for procuring equipment and other costs associated with cocoa production. Government can set up cocoa processing units which farmers can use at subsidized rates. Regulations must be brought in to fix prices as per market dynamics which will benefit the farmers, avoiding their exploitation.

Prosperity Follows Crisis.

Many Chocolates who we spoke to in the last few months are positive that this crisis is for good and should lead to a much more prosperous platform for everyone who adds value to this industry. Growing plantations in ASIA combined with efforts from governments and companies, chocolate industry will have a major uplift. But this change is drastic and will take some time. Till then it is important for chocolate makers to stay focused to provide value added products to their customers.