LONDON/ACCRA — Major cocoa factories in Africa’s Ivory Coast and Ghana are halting or reducing processing because they can’t afford to buy the beans, four trade officials said. This means chocolate prices around the world could rise.
Chocolate makers have already raised prices for consumers in both countries, which produce nearly 60% of the world’s cocoa, as a fourth crop is expected after three years of poor cocoa production.
Cocoa prices have more than doubled since last year, hitting a number of all-time highs.
“We need massive demand destruction to keep up with the supply destruction,” said Steve Waterridge of Tropical Research Services, a global cocoa expert.
Chocolate makers are unable to use raw cacao to make chocolate, so they rely on processors who turn the beans into liqueurs that can be made into butter or chocolate.
But processors say they can’t afford the beans.
Transcao, Ivory Coast’s state-owned bean processor, said it had stopped purchasing beans at one of its nine main factories in the country due to price.
He said they are still processing from stock, but did not say at what capacity they are operating. Two industry sources said the factory was nearly idle.
They requested anonymity because they were not authorized to speak publicly on the matter.
One of the two sources said more major state-run factories could soon close in Ivory Coast, the top producer that produces nearly half of the world’s cocoa.
Even global trader Cargill had trouble sourcing beans for its main processing plant in Ivory Coast, shutting down operations for about a week last month, the same two sources said. Cargill did not respond to requests for comment.
In Ghana, the second-largest cocoa producer, most of its eight factories, including the state-run Cocoa Processing Company (CPC), have repeatedly shut down for weeks since the season began in October, another industry source said. This was revealed by two people involved.
CPC said it is operating at about 20% of its production capacity due to the bean shortage.
Chaos at the farm gate
Rising prices are upending the long-established structure of the global cocoa trade, in which farmers sell beans to local traders, who in turn sell beans to processing plants and global traders.
These vendors sell beans and cocoa products (butter, powder, cocoa liquor) to global chocolate giants such as Nestlé, Hershey, and Mondelēz.
In normal times, the market is highly regulated, with traders and processors buying beans from local dealers at prices that are pre-agreed up to a year in advance. Local regulators then set a low farmgate price that farmers can charge for their beans.
However, during times of scarcity like this year, this system breaks down and local distributors often pay farmers more than the farmgate price to secure their beans.
The dealer then sells the beans on the spot market at a higher price, rather than delivering them at a pre-agreed price.
Local processors often run out of beans as global traders rush to buy them at any price to meet obligations with chocolate companies.
Authorities in Ivory Coast and Ghana typically try to protect local plants by issuing cheap loans and limiting the amount of beans that global traders can buy.
However, this year the plants are unable to get the cocoa they pre-ordered and cannot afford to buy at the higher spot price.
Already, chocolate makers are raising prices. U.S. retailers priced chocolate products 11.6% higher last year compared to 2022, according to data from market research firm Circana.
The International Cocoa Organization (ICCO) predicts that global cocoa production will fall by 10.9% to 4.45 million tonnes this season.
Crushed volumes, an indicator of demand, will fall 4.8% to 4.78 million units as processors struggle to buy beans, supplying chocolate makers with less butter and higher prices. .
ICCO said the mismatch between supply and demand is expected to leave the market in the red by 374,000 tonnes this season, up from 74,000 tonnes last season.
This means that processors and chocolate companies must utilize cocoa stocks to fully meet their needs. ICCO expects global cocoa stocks to fall to their lowest level in 45 years by the end of the season.
Tropical Research’s Waterridge said the cocoa market could post further losses next season given the severity of bean diseases in West Africa.
The market hasn’t experienced a four-year deficit since the late 1960s, according to ICCO data.
