Africa is the largest contributor to the world cocoa supply, and the near shutdown of major cocoa processing plants is significantly influencing the global chocolate industry.
Côte d’Ivoire and Ghana are responsible for 60% of the global cacao production. Raw cocoa supply issues in these countries have led to a major setback worldwide.
Considering the compromised cocoa productions in these regions for the past three years, chocolate manufacturers raised the prices by 11.6% in 2023 and may increase them more.
Global Cocoa Shortage
The International Cocoa Organisation (ICCO) predicts that global cocoa production will decrease by 10.9% to 4.45 million metric tons.
Reports mention that eight cocoa production plants in Ghana, including the state-owned Cocoa Processing Company (CPC), suspended work for weeks in October. Moreover, the plant is operating at only 20% of its capacity because of a bean shortage.
Simultaneously, Ivory Coast’s cocoa grind in January was down 3.6% over the years at 63,380 tons, whereas it has a grinding capacity of 713,000 tons.
Eventually, issues in cocoa supply and demand will result in a 374,000-ton deficit, with global cocoa stocks falling to their lowest in 45 years.
According to Hugo van der Goes, Vice President Cocoa, Barry Callebaut, North America, “The industry is in justified panic mode. In Europe, there are hardly any stocks of cocoa butter and we’re seeing very low stocks of cocoa powder in the US, and while there has been some pushback on the retail side and demand for confectionery products in general is down, it is not compensating for the shortfall in supply.”
Hugo van der Goes also stated that Barry Callebaut is foreseeing a 500,000-ton deficit for 2023-24 and a 150,000-ton deficit in 2024-25 under normal weather conditions. He advised chocolate buyers to ensure they are covered for this and next year.
But the questions are: why is Africa facing shrinkage in cacao trees, and how is it affecting farmers, economy, and the chocolate industry?
Factors Influencing Cacao Production in Africa
Environmental Factors
Africa has been experiencing drier weather recently because of the El Niño phenomenon, leading to a major loss of harvests (around 500,000 hectares). Experts say that El Niño is here to stay, and dry conditions in the region may further hurt cacao production as they reduce the amount of arable land available for cocoa cultivation. The environment might also lead to the spread of diseases and pests.
At the same time, the cocoa swollen shoot virus damaged a massive fraction of the cacao crop. As the infected land is not suitable for planting for five years, farmers find it challenging to find adequate land for cocoa cultivation, leading to cocoa supply chain risks.
Economic Factors
While cacao production was initially thought of as a high-profit crop, the practices have not been able to benefit the farmers much. The lack of fair payments to labor for sustainable cocoa production is an added issue, resulting in farmers opting for other choices.
Human Factors
Illegal practices such as mining and child labor are prominent obstacles to ethical cocoa production in the region. Mining on fertile land degrades the quality of the land, eventually making it unsuitable for cacao plant cultivation.
Current Cacao Production Situation in Africa
In February 2024, the Ghana Cocoa Board (Cocobod) acquired a US$200 million loan from the World Bank to restore crops affected by the cocoa swollen shoot virus. The fund will be utilized to improve cocoa supply and demand by replacing the diseased trees and plant new ones. The board has also established a team to protect the farms from mining and damaging fertile land.
On the other hand, Côte d’Ivoire is not taking efficient measures yet as the government is still analyzing the situation. However, they are working to cease cocoa smuggling to neighboring countries to help mitigate raw cocoa supply issues.
Steffany Bermudez, policy advisor at the International Institute for Sustainable Development, said, “Private sector capital can be instrumental in the adoption of actions to adapt to climate change,” further mentioning that support from the private sector can be “a bridge for engagement with key financiers to build the sector’s resilience.”
Numerous multinational companies offer sustainability programs to cocoa farmers in the region. For example, the Rainforest Alliance, a non-governmental organization, initiated the Restore project in Cote d’Ivoire and Ghana to help cocoa farmers. The project offers $7 million to rehabilitate 15,000 farmers, manage 50,000 hectares of land, and increase cocoa cultivation.
Effect of Reduced Cacao Production on Farmers
As the world cocoa supply deficit has led to higher prices of cocoa beans globally, it does not benefit farmers in the long run. If the issues prevail, farmers will have a lesser yield and reduced income, resulting in poorer economic conditions.
Kerry Daroci, the cocoa sector lead at the Rainforest Alliance, said, “Cocoa farmers facing critical decisions may start looking to higher-altitude regions where the weather is more favorable for cocoa cultivation, or some may decide to leave cocoa cultivation altogether.”
Thus, it is important for African countries to unite and negotiate for better situations for the farmers involved in cocoa plantations and production.
Effect of Reduced Cacao Production on World Cocoa Supply
Processors or traders buy cocoa beans from farmers and produce products like cocoa liquor, butter, and powder. These products are sold to chocolate companies to manufacture chocolates.
The process runs smoothly during regular cocoa production, but raw cocoa supply issues have made it difficult for traders to meet the needs of chocolate makers. Processors are ready to pay a premium price for the cocoa beans they can get. However, it is a short-term solution, and this shortage will lead to major complications.
While governments usually try to regulate the supply chain and protect local plants by limiting volumes of beans that big brands can buy, disturbances in the supply chain are inevitable in such situations.
Economic Impact of Reduced Cacao Production
The cacao industry will prominently be affected when the cocoa supply and demand do not align.
According to a Reuters report, cocoa rates have reached their highest point in 50 years.
Due to a significant drop in global cacao production, the prices are expected to rise more. Chocolate-producing companies sourcing from Côte d’Ivoire and Ghana might also need to find cocoa alternatives to keep their operations running.
Final Words
The demand for chocolate is increasing worldwide and is expected to rise by over 4% annually. The near shutdown of cocoa production plants in Côte d’Ivoire and Ghana due to dry environment and cocoa swollen shoot virus will impact around 60% of the world cocoa supply. These raw cocoa supply issues will also increase prices and the need for cocoa alternatives. Ghana and Côte d’Ivoire are taking measures to improve cocoa production. However, the situation has been similar for the past three years. Some private sector companies offer support to rehabilitate cocoa plantation in the region. Simultaneously, Latin American countries like Brazil and Ecuador are making efforts to fill this gap and emerge as prominent cocoa producers.