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HomeAfricaMARK-TO-MARKET: Cocoa reaches an all-time high price

MARK-TO-MARKET: Cocoa reaches an all-time high price

That chocolate Easter bunny will likely cost a lot more this year

The mighty cocoa bean, often referred to as simply cocoa, has been a cherished confection for millennia. Its use and consumption dates back more than 5,000 years. Today, the 16 nations that constitute West Africa provide roughly 81% of the world’s annual cocoa bean harvest. The nation of Ivory Coast is the largest single producer, accounting for 38% of global production.

The main derivative of cocoa is chocolate. And boy does the world love its chocolate! The country that consumes the most chocolate is Switzerland, where on average, each Swiss citizen consumes a gut-busting 19.4 pounds per year. Austria and Germany rank No. 2 and No. 3, as their citizens gobble up an average 17.9 pounds and 17.4 pounds each year, respectively. For its part, the U.S. ranks No. 18 as the average American consumes 9.7 pounds per year. According to the National Confectioners Association, last year, Americans spent $25.9 billion on chocolate, up 5.8% from 2022.

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The National Retail Federation estimates that 81% of all Americans will celebrate Easter this year. Those Americans are expected to spend $22.4 billion on candy, gifts, decorations and other Easter-related items. This is down 6.7% from last year’s record-high $24 billion. On average, each American will spend $177.06. According to the National Confectioners Association, for those Americans who will celebrate Easter, 92% will buy chocolate or candy totally $5.4 billion in sales.

But Easter candy is expected to cost a lot more this year as the price of cocoa continues to soar. Like many global commodities, cocoa is bought and sold on the global marketplace. On Tuesday, the price of cocoa reached an all-time high of $10,067 per metric ton. Just 12 months ago, its price was just $2,881 per metric ton. Year-to-date, cocoa prices have risen 138%. For perspective, a metric ton equals 2,204 pounds. That’s the weight of roughly 22,750 standard-sized Hershey chocolate bars. So, what’s causing this massive surge in cocoa prices?

The cocoa-producing region of West Africa has been hit hard by adverse weather and disease, causing the worst global supply deficit in 60 years. For the 2023-24 harvest season, the International Cocoa Organization projects a supply deficit of 374,000 tons. This is up 405% from the prior season’s deficit of 74,000 tons. Many experts caution the supply deficit is likely to worsen.

The chocolate industry is well aware of the inflationary pressures Americans have been facing, especially for food. Since February 2021, food prices have risen a cumulative 21%.

In response, chocolate companies have been trying to mitigate the impact on consumers by promoting candies with less chocolate content. They’ve also reduced the amount of chocolate in many candies. For example, if a candy bar consists of chocolate, wafers and caramel, the manufacturer may use less of the higher-cost chocolate and more of the lower-cost wafer and caramel. Companies have also reverted to shrinkflation — reducing the product size while still charging the same price.

Despite their efforts to minimize price increases on their chocolatey treats, some companies admit they’ve been forced to raise their consumer prices by as much as 30%. Granted, it’s highly doubtful that even the most prolific of chocolate eaters would spend $10,000 to buy a metric ton of cocoa. But that chocolate bunny you bite into this Easter holiday will likely cost you a lot more.

Mark Grywacheski is an expert in financial markets and economic analysis and is an investment adviser with Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment adviser with the U.S. Securities Exchange Commission.