Cocoa Crop Flop, High Prices To Pinch Pockets Of Chocolate Lovers

Consumers will have to shell out more for chocolates amid the double whammy of falling cocoa output in the key producing region of Western Africa and record global prices of the delectable commodity.

Prices of the most important raw material for chocolate-making have more than tripled as a supply crunch grips the market. Cocoa futures surpassed $10,000 a tonne for the first time ever in March. This month alone, New York futures rose 60% to settle at $9,566 a tonne.

It's unlikely that the prices will come down before the next harvest, costing the likes of Cadbury-maker Mondelez, Nestle India, Hershey and Parle. Some consumer goods makers even attributed the current trend to the withholding of stocks by traders.

“It's a difficult situation,” Mayank Shah, vice-president, Parle Products Pvt., told NDTV Profit. “There's a shortage in (cocoa) production, but it isn't as low as what’s arriving at the ports. The dealers seem to be hoarding stocks, further compounding the problem in order to artificially jack up the prices.”

The sharp rise in prices started with bad weather and crop disease in Ivory Coast and Ghana. Supplies may worsen causing a shortage not seen in at least the last 60 years. In the first estimates for the crop year 2023-2024, the International Cocoa Organisation forecasts a massive supply deficit of 3.74 lakh tonne as compared with a deficit of 74,000 tonne a year ago due to lower production, marking the third consecutive year of deficits in the global market. ICCO expects production to fall by 11% to 4.5 million tonne.

Large chocolate companies were well-hedged last year, allowing them to deal with the price volatility without passing on the burden to consumers immediately. However, they eventually increased prices by 12-15% over the course of the year. It is expected that a similar strategy will be followed this year as well, with a possibility of even steeper price hikes amid cocoa's historic surge.

Cocoa is climbing at a time when prices of sugar—the other crucial commodity—has risen 10.8% over the preceding year.

The fresh spike in commodity costs is prompting companies to rethink.

“We’re currently reviewing the situation,” Parle’s Shah said. "One can expect to see a significant price hike post May unless prices come down.”

A Nestle India spokesperson also said they are monitoring the situation, while Amul said it will take calibrated price increases to cope with cocoa price volatility.

Smaller companies, meanwhile, are now being forced to halt production.

In a LinkedIn post, Shashank Mehta, founder and CEO of The Whole Truth Foods, said the company is pausing production of milk chocolates and hiking prices of dark chocolates. There is an "unprecedented" shortage of cocoa as all supplies have been locked out by big farmers, he said.

The Hershey Company CEO Michele Buck expects cocoa to limit earnings growth this year. But the company will be ramping up advertising and related consumer spend to boost sales. "This period of historically high cocoa and sugar prices, while challenging, is no different," she said in her prepared remarks in February. "We'll continue to invest across our brands."

Demand, however, is unlikely to take a hit as chocolates, especially of the premium variety, are seen as inflation-resistant.

In September last year, Desmond D'souza, senior director of sales at Mondelez India Foods Pvt., told NDTV Profit that it managed to sell more packs even as it had to raise prices to offset the pressure on margin.

Chocolate sales sustained double-digit growth for Nestle India, too.

Overall, chocolate consumption grew 30% in 2023 with average spend on the category growing 10%, much faster than the FMCG consumption growth, according to Kantar insights.