There was once a time when the chocolate industry reaped enormous profits, but that success has been disrupted by an unprecedented crisis in recent history. For years, cocoa’s cost and supply have been relatively stable, which has allowed consumers globally to buy chocolate easily.
However, a dramatic shift has happened, and since then, the sector has been grappling with significant prices and severe cocoa bean shortages. It all started in early 2024 when prices surged to more than $11,000 per metric ton – three times higher compared to the average prices since the 1980s. Amidst wider economic shifts and geopolitical turbulence, the challenges in the cocoa sector don’t show any signs of ending soon. The crisis in the cocoa sector is equally impacting everyone, from consumers to companies and smallholder farmers who produce cocoa. In this context, the importance of addressing the challenges and safeguarding the long-term health and sustainability of the supply chain cannot be overstated. The solutions, however, need to be more agile, as the pressures have only intensified since last year.
Reasons behind the cocoa shortages
The existing cocoa shortage is due to a mix of economic and environmental factors. Cocoa trees in West Africa, which have been bearing fruit for a very long time, are producing fewer pods, which are also not as healthy as before. For example, in Ghana, which is among the major countries that produce cocoa, black pod disease has had a devastating impact on crops, aggravated by a season of poor weather conditions that further affected the harvest.
Moreover, the dynamics of the cocoa market have been considerably impacted by speculators, including well-known figures such as Pierre Andurand, a French businessman and hedge-fund manager who specializes in oil trading and entered the cocoa industry after acknowledging its potential for substantial profit. The influx of speculative investment has caused a massive increase in the prices of cocoa, which doubled in just one year and achieved an unprecedented peak level since the 1970s. Consequently, chocolate manufacturers have struggled to sustain production without passing costs onto consumers, and this has caused a decline in market liquidity, at the same time increasing the financial strain on supply chain players, including retailers and farmers.
The cocoa crisis has ripple effects throughout the chocolate industry
The cocoa crisis has profound effects not only on cocoa farmers but also on the entire global chocolate production line. As prices have reached record highs, the operational viability of many chocolate companies has been threatened. For instance, major enterprises in countries such as Germany and Malaysia have had to stop their operations, while in the U.S., Chicago-based firms have also faced closures, which demonstrates the wide impact of the crisis.
To survive the cocoa crisis, chocolate makers have adopted different measures, such as shrinkflation, which represents a small reduction in volume to maintain a specific price point, and skimpflation, which is a more subtle technique and involves adjusting the ingredients’ mixture to decrease the proportion of the most expensive components. This essentially means that a chocolate bar would still cost £1.49 but would not be as chocolatey anymore, or it would include fruit or biscuits.
While these measures may have provided some relief to a certain extent, it’s paramount to come up with more evolved and strategic solutions. This is especially true considering that skimpflation and shrinkflation have a risk of facing shopper backlash, which could erode engagement with a brand and consumer trust – something that no cocoa company is in the position to face during this global crisis.
There is still hope for positive change – but collaboration and innovation are imperative
The consequences of the global cocoa crisis are clearer than ever, but the good news is that there is a silver lining even amidst all the pressure and challenges. However, it will take considerable effort from the chocolate industry, governments, and consumers to ensure a more sustainable future for cocoa.
In a recent WFC (World Cocoa Foundation) Partnership Meeting, stakeholders from across the value chain came together in an attempt to tackle the most pressing challenges of the cocoa industry, highlighting the urgent need for more farmer-centric measures in response to significant disruptions. Innovation was one of the main points discussed at the meeting, with a particular focus on the importance of exploring new approaches like using cocoa flavorings as alternative ingredients and upcycling cacao fruit. These formulation shifts demonstrate a growing effort to embrace greener production models and adapt to shifting market dynamics.
Some cocoa companies have talked about sustainability initiatives previously, but little difference was made throughout the time, and it’s time for real action to make a change before it’s too late. Needless to say, using cocoa ingredients that are sustainable and ethically sourced should be a non-negotiable for companies, especially now that consumers are becoming more aware of their purchasing habits and aim to contribute to a more sustainable feature in whatever small ways they can.
Furthermore, creating a future-proof cocoa industry requires collaboration at all levels, and that solution needs to be implemented as soon as possible, as the sector cannot afford to wait. To tackle the challenges of climate change and increase farmer incomes through diversification, it’s essential to cultivate climate-resilient cocoa and implement eco-friendly practices such as regenerative agriculture and agroforestry. In agroforestry, cocoa is produced under the shade of taller trees such as cashew and mango.
According to recent research, two million hectares of cocoa farms in Ghana are produced with nearly no shade, which leaves trees vulnerable in the face of extreme weather conditions. Agroforestry can be an excellent solution as it provides shade, which helps decrease heat stress on cocoa trees, and at the same time, it boosts soil fertility, supporting biodiversity and improving carbon storage. In fact, shaded cocoa plantations can store up to 2.5 more carbon compared to unshaded ones, which can be a win-win for climate mitigation and farmers alike. This transition wouldn’t be simple at all, as farmers lack the financial resources required for shade trees. However, through collaboration and investments, farmers could receive the required support, making a significant change in the future of cocoa.
A proactive approach is also needed to manage crop diseases, like Cocoa Swollen Shoot Virus Disease, requiring shared research bases, enhanced investments in strategies that would support disease prevention, as well as the adoption of necessary agronomic practices that would reduce the spread and impact of diseases.
The bottom line
There’s no doubt that the cocoa industry is still facing major challenges, but even in times of intense pressure, it is still possible to make a difference. By working together, investing in cocoa farmers’ resilience, and adopting sustainable practices, the industry can bounce back from the challenges and make cocoa production more sustainable.
