Food prices have long been one of the most important things for members of the general public, given their essential nature. When the staples become more expensive, people are forced to spend more, meaning that living costs as a whole become more elevated. This means that people might not have enough to put toward their savings, home repairs, or hobbies, among many others, and there are plenty who start looking for a second job in order to make ends meet. Others face food insecurity as a result or have to resort to unhealthier but cheaper options, something that creates nutritional deficiencies which lead to illness and even stunted growth in children.
Lower-income individuals suffer the most, as they are the demographic spending the majority of their earnings on food and rent, so when the prices climb, they are naturally more affected. Supply chain disruptions, the threat of climate change, energy costs, and inflation are the main culprits, and as the primary ingredients get more expensive, producers need to hike up the costs as well in order to maintain profitability and keep their businesses afloat.
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Cocoa
The food industry was the site of a noteworthy event in 2024, which has been referred to as the global cocoa meltdown. This event was the result of the negative impact of pests and the El Niño phenomenon on cocoa production, a problem not only for the consumers but also for the farmers who have to deal with the potential loss of their income and destitution. For the third year in a row, the global cocoa supply fell short of demand by a whopping 8.5%.
Many producers have started incorporating different strategies that can help them reduce costs. For instance, many are looking for a nuts supplier that can provide them with a comprehensive list of options and ensure sustainability standards at the same time. Nuts are one of the most popular ingredients added to chocolate when making confectionery, so their value will have a considerable effect on the price of the finished product as well. On August 31st, the International Cocoa Organization presented the forecast for the 2023-2024 world production numbers, which indicated a deficit of roughly 462,000 tons.
This is an eightfold increase compared to the deficit of the 2022-23 season. West Africa, the region providing roughly 70% of the global supply, had a very poor harvest due to weather conditions, disease, and aging trees. A new threat comes from gold mining, an industry that is taking land away from cocoa farms. According to recent data, the stocks-to-grindings ratio was at a 45-year low.
Retail
The manufacturers who buy cocoa wholesale are constantly looking for the best options available to them so that they can provide customers with the best products possible. However, they are also struggling due to the soaring costs, and these troubles will inevitably be felt on supermarket shelves, either in the form of shortages or as incredibly elevated prices that will cause consumers to buy less. As a result, between steep fees for raw materials and lower sales, many business owners can expect their revenue to decrease significantly. The small businesses are particularly concerned due to the possibility of being ousted from the market and becoming bankrupt as a result of these disruptions.
In the Netherlands, for instance, chocolate was nearly 20% more expensive year over year, even without the cocoa being priced in. Sugar, dairy, and energy prices have also been higher, driving the change even further. Since many contracts established between manufacturers and suppliers were hedged at the beginning of 2024, before the prices started climbing, customers have yet to see the worst of the effects.
The sharpest price hikes are expected to arrive during the last quarter of 2024 and continue into 2025. As a result, retail prices for chocolate in 2025 could be as much as 30% higher since many producers will have no choice but to pass some of the costs on to the consumers.
The outlook
Apart from the higher prices, shoppers should also not be surprised if they end up experiencing shrinkflation, the phenomenon that reduces the size or quantity of a product although the price remains the same. Ingredient substitutions are also likely to become far more popular, although many of them have been regarded negatively by consumers in the past. Palm oil replacing cocoa butter is one of the most well-known examples, and the reason it is viewed negatively doesn’t only have to do with its relatively high saturated fat content but also with the fact that a lot of palm oil isn’t ethically and sustainably sourced.
A majority of chocolate confectionery is manufactured in Europe, but since 2021, the sector has been experiencing a steady decline, with sales dropping by as much as 6% in some regions. Some market analysts believe this is part of a more significant, structural transformation in the marketplace, that is seeing clients shop for sweets in fewer numbers and smaller quantities. Transitions in the supply chains and general consumer habits could create a well-balanced and more resilient industry, but this won’t happen overnight. In fact, it will likely take between three and four years for young cocoa trees to start producing beans at a rate that is meaningful for the cocoa and chocolate industries.
That means that the investments into new farms in South America and West Africa won’t bring price relief very soon. Farmers will also have no choice but to continue with the unpredictable changes created by climate change and the cacao swollen shoot virus, a pathogenic virus that significantly decreases yields during the first years of infection, and typically kills trees entirely in a few years.
Cocoa prices are anticipated to keep growing in the next year, impacting the entire market, from the farmers and manufacturers to the end consumers. Some of the other factors that will affect the market are the new regulations, such as the EU Deforestation Regulation, set to take full effect on January 1st, 2025, and which will ensure that several essential commodity products, including cocoa, cannot be exported from or sold in the EU if they were sourced from areas dealing with forest degradation.
The current changes are naturally disruptive and worrying for many producers who aren’t sure if they will be able to navigate them, but they are nonetheless the natural result of more significant global shifts in climate patterns and policies.
