Cocoa buyers will raise the minimum price paid per metric ton from about $2,124 to $2,600 after Ghana and the Ivory Coast threatened to suspend sales of cocoa beans for next year's season, according to Reuters. Governments of the West African countries, where about two-thirds of the world's supply is grown, said a higher price was needed to balance what cocoa farmers make and what big commodities traders receive.
Cocoa prices have recently dropped 30% because of overproduction, Confectionery News reported, exacerbating an already tough situation for cocoa farmers who often make no more than $1.90 per day. Factoring into the decision to increase prices was Fairtrade International's decision last fall to increase the price of conventionally grown cocoa 20% to $2,400 per metric ton, the publication added. Organic cocoa will receive a higher premium.
A technical meeting for cocoa traders, manufacturers and processors will take place July 3 in Ivory Coast to discuss how the minimum pricing agreement will be implemented, Reuters said. Until the agreement is finalized, agriculture ministries of the two countries indicated there will be no sales for the 2020-21 season.
Cocoa buyers and processors are dependent on Ghana and Ivory Coast for their supply of cocoa beans, a fact underscored by how quickly they agreed to the price hike. Cocoa prices have fluctuated a lot in recent years due to climate change, overproduction and problems posed by child labor and forest destruction. If the supply isn't stabilized, confectionery makers such as Mars, Nestlé, Mondelez and Hershey could see earnings losses, and consumers might have to pay higher retail prices.
Manufacturers have a big incentive to pay a bit more for cocoa beans because — regardless of production challenges — demand is soaring as premium chocolate varieties, dark chocolate options and sugar-free products grow in popularity. The U.S. chocolate market, which is the world's largest, was valued at about $22 billion in 2016, according to a TechSci report. It is projected to exceed $30 billion by 2021.
While there are other cocoa-producing countries besides Ghana and Ivory Coast — the main ones being Indonesia, Nigeria, Cameroon, Brazil and Ecuador — nearly all the farms are small, labor-intensive operations where cocoa beans provide the sole income. This helps to explain why negotiating a minimum price was such an important bargaining point in this recent deal.
Without a deal, chocolate growers, traders, manufacturers and consumers would have eventually felt the squeeze from scarcer supplies and consequently even higher prices. This isn't a scenario anybody along the cocoa supply chain would welcome. While Ghana and Ivory Coast might not have actually gone through with the sales suspension, just the threat of such an action was sufficient.
Because of increasing consumer demand and the difficulties of sustaining cocoa yields, chocolate producers are trying to bolster sustainability — which in this industry extends beyond the environment to the economic condition of workers — in a number of ways. Hershey announced a $500 million investment in West African cocoa sustainability last April. Nestlé, Lindt, Mars, Mondelez, Cargill and Barry Callebaut have also ramped up their sustainability investments and pledges.
Companies don't always carry through with sustainability pledges, and child labor and farmer income problems stubbornly remain. According to a Cocoa Barometer report from 2018, about 2.1 million children work on cocoa farms in Ivory Coast and Ghana, and commitments by companies and governments to reduce child labor 70% by 2020 will not be achieved. The report also found the average cocoa farmer makes about one-third of what constitutes a living income, and about 90% of West Africa’s original forests have already been destroyed.
Going forward, if enough eyes remain on the situation and high demand for chocolate persists, it's likely people will continue to pay attention to how the cocoa industry operates. For those engaging in fair trade, paying higher prices and working toward sustainability as promised, the industry's reputation stands to gain from more transparency and credibility — values consumers increasingly demand and where their purchasing dollars often follow.