As cocoa outprices copper, farmers reel from bitter deals
March 27, 2024Cocoa prices have surged to unprecedented heights in recent months, shattering records as the commodity's value skyrockets. On Tuesday, the cocoa prices hit $10,000 (€9,235) per metric ton, making it more expensive than copper, which is currently trading at around $8,700 per ton.
The latest cocoa price is in stark contrast to a year ago when prices for the commodity languished below $3,000.
The cocoa market's dynamics reveal some troubling aspects, as the current boom benefits only some of the stakeholders in the business. Cocoa farmers, for example, have been finding themselves trapped in poverty for years, unable to survive on their labor alone. Reports of malnutrition and child labor are rife in the industry, with hopes pinned on higher cocoa prices to alleviate their plight.
Another problem is the disproportionate production concentration, with Ivory Coast and Ghana collectively accounting for nearly two-thirds of global cocoa output.
What causes prices to soar?
The current price surge stems from substantial crop failures in these key producing regions, according to Friedel Hütz-Adams, a cocoa expert at the Südwind Institute in Bonn, Germany.
"At the moment, it is estimated that the harvest in Ivory Coast and Ghana has decreased by at least one-third," Hütz-Adams told DW.
The El Nino weather phenomenon, compounded by local environmental factors, has exacerbated the poor harvests. Hütz-Adams highlighted the impact of deforestation in intensifying the effects of El Nino in the region, leading to prolonged periods of rainfall or droughts that damage cocoa yields.
The financial constraints faced by many cocoa farmers are making matters worse, rendering them helpless in the face of agricultural challenges. "In Ghana, for example, last year, it did not rain in many regions at first and then rained for so long that the cocoa trees were submerged in water for a long time, leading to diseases spreading on the fruits," said Hütz-Adams, calling the situation a "catastrophic mix" of weather events.
The European Union has emerged as a pivotal player in the cocoa market, consuming approximately half of the world's production, with the United States following closely behind as the second-biggest consumer. Cocoa farmers receive only a fraction of the proceeds from the industry, with the bulk of profits accruing to manufacturers and traders all of whom are based in Europe and the US.
Of every euro spent on a chocolate bar, only around seven cents go to cocoa farmers, while manufacturers and traders receive around 80 cents, revealed the Federal Ministry for Economic Cooperation and Development (BMZ) in Germany.
To mitigate the risks associated with fluctuating cocoa prices, chocolate manufacturers engage in futures trading, securing cocoa beans well in advance of harvest.
However, this practice often leaves farmers vulnerable, as their crops are sold at lower prices before price surges. Farmers in Ivory Coast and Ghana, for example, sold 80% of their production already in October last year even before the harvesting season had begun.
Banking on the future
"The tragedy is that farmers in Ivory Coast and Ghana are hardly benefiting in the current season because the crops were sold before prices rose," said Hütz-Adams. Most farmers sold their produce at $1,800 at the time and are now grappling with severe crop losses.
Hütz-Adams emphasized, however, that current futures prices indicate a sustained period of high cocoa prices for the next one to two years, offering a glimmer of hope for farmers in major producing countries.
"The exchange price is more than double what it was a year ago, even for deliveries at the end of 2025. If we ensure that a large part of this money reaches farmers, then this price explosion can be an opportunity," he said.
Expensive chocolate
While the demand for chocolate is on the rise, particularly in emerging markets like China and India, the extent of their impact on global cocoa consumption remains limited. "I've been hearing for 15 years that Chinese people will soon eat a lot more chocolate, but so far, that hasn't happened," said Hütz-Adams.
The cocoa expert says further price hikes for chocolate in Europe seem inevitable.
"Even before Christmas 2023, chocolate prices in Germany were raised on the grounds that the raw material price had increased," he said, and that even though chocolate prices then were calculated based on the previous season when cocoa prices were still significantly lower.
As smaller cocoa-producing nations scramble to meet demand, prices continue to rise. While the price surge may present an opportunity for farmers, the long-standing issues of poverty, malnutrition, and child labor in the industry remain unresolved.
This article was originally written in German.