Disrupted African cocoa supply chain threatens global chocolate production

Soaring African cocoa bean prices force processor shutdowns, raising concerns of price hikes for consumers.

A confluence of poor harvests, high prices, and a fractured trade system in Africa is creating a major disruption in the global cocoa supply chain, according to Reuters.

The global chocolate industry faces significant challenges as major cocoa processing plants in Ivory Coast and Ghana, supplying nearly 60% of the world’s cocoa, are forced to halt or significantly reduce operations, according to reporting by Reuters. This disruption stems from skyrocketing cocoa bean prices driven by three consecutive years of poor harvests in West Africa, with a projected fourth on the horizon.

Industry experts like Steve Wateridge of Tropical Research Services warn that a substantial “demand destruction” might be necessary to address the current supply deficit. This could translate to reduced chocolate production or higher consumer prices to curb demand and bring it in line with limited supply.

Broken mechanisms expose vulnerabilities in the cocoa trade system

Chocolate manufacturers rely on processors to convert raw cocoa beans into butter and liquor, essential ingredients for chocolate production. However, with record-high bean prices, processors are caught in a bind. They struggle to compete with the aggressive bids offered by international traders on the spot market, leaving them with insufficient supply, according to the report.

State-owned Ivorian processor Transcao, a major industry player, has halted bean purchases entirely, relying on existing stockpiles to maintain limited operations, Reuters reports. Similar situations unfold across the region, with Ghanaian processors like the state-owned Cocoa Processing Company (CPC) experiencing repeated shutdowns due to bean shortages. This disruption to the cocoa bean flow from farms to processors has a ripple effect, impacting chocolate manufacturers downstream.

Unintended consequences

The current crisis exposes vulnerabilities in the established cocoa trade system. Traditionally, local dealers purchase beans from farmers based on pre-agreed prices and then sell them to processors or international traders like Cargill. Regulatory bodies like the International Cocoa Organisation (ICCO) typically play a role by setting farmgate prices to manage costs for farmers.

However, during periods of scarcity, the system breaks down. Local dealers offer farmers premiums above the official farmgate price to secure beans. These beans are then sold on the spot market at significantly higher prices, bypassing pre-existing contracts with processors. This leaves processors scrambling for beans they cannot afford at the inflated spot market rates. The established system lacks the ability to regulate these practices during crisis situations, leading to market chaos and supply chain disruption.

Consumers likely to face higher chocolate prices

The consequences are already being felt by consumers. U.S. retail stores have already implemented price increases on chocolate products, exceeding 11% compared to 2022. The ICCO predicts a significant drop in global cocoa production and processing (grindings) this season, leading to a substantial supply deficit. This deficit will likely force processors and chocolate companies to rely on dwindling stockpiles, pushing cocoa prices even higher. The cost burden will ultimately be passed down to consumers through increased chocolate bar prices.

The situation could worsen as Wateridge suggests the cocoa market might face another deficit next season due to the prevalence of bean disease in West Africa. This raises concerns about a prolonged period of chocolate shortages and high prices for consumers.

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