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Cocoa price at new record high. Chocolate may cost more by dozens of percent

Translated by Milo Dvorak

21. 3. 2024

Business Newsletter #18

Published by Česká televize on 19 March 2024

newsletter 18
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Cocoa in the world markets has been skyrocketing in price since the beginning of the year. Its price is rising the fastest among all traded commodities, currently exceeding eight thousand four hundred dollars ($8,400) or 195,500 Czech crowns per tonne, which is four times more than two years ago. According to analysts, the reason is poor harvest in North Africa caused by bad weather. The increase in commodity prices in the markets, according to them, will be reflected in retail prices after some time. Chocolate, therefore, may become more expensive by dozens of percent.

"The price of cocoa began to rise at the beginning of last year. From a price around two thousand dollars per tonne, it has hit the current eight-thousand-dollar-per-tonne threshold. The price increase during this period is higher than that of olive oil or orange concentrate, whose retail price has already gone up," warned analyst Jiří Tyleček of XTB.

The global supply of this commodity depends on the countries of the African Sahel, namely states in North Africa on the southern edge of the Sahara. Three quarters of the global production is attributed to a relatively small area in West Africa. The threat to such concentrated production is bad weather and poor harvest, which is exactly what has happened this time, Tyleček pointed out.

The Sahel countries have been hit by the El Niño climate phenomenon for the second year in a row. The biggest problem was the disrupted seasonality of rainfall. Two growing seasons were affected by drought, first during the ripening period of cocoa pods, followed by a weak production being washed away by a wave of rains, which brought diseases to cocoa plants and devalued production.

Cocoa supplies from Ivory Coast, which is the world's largest producer, have fallen by thirty percent year-on-year. Even a year ago, they were already lower than in the preceding years.

Fears of a sudden price hike

Large food companies purchase raw materials for the production of their goods well in advance and maintain inventories. This is one of the factors behind the still relatively favourable prices of cocoa products in retail chains. However, according to Tyleček, this cannot last much longer, and the price increase could be sudden. Wholesale purchases of cocoa contracts at high prices are already starting to be reflected in retail prices.

Manufacturers of cocoa products can either pass the high price onto the customer or reduce the size of products while maintaining prices. Another possibility is to reduce the volume of the cocoa component or to bring products based on sugar or other cheaper raw materials to the forefront of marketing campaigns.

"It still stands true that the higher the cocoa content, the higher the risk of a substantial price increase. The situation will also be affected by the price development of other raw materials or the costs of producers, but the rise in cocoa prices is so extreme that a significant price jump is simply imminent," noted Tyleček.

According to Bloomberg, the financial director of the Swiss chocolatier Lindt & Sprüngli, Martin Hug, says that predicting the development of cocoa prices is now difficult, but that their company tries to keep the supply of cocoa required for production as much under control as possible. "We are trying as best as we can," Hug added.

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