Cocoa beans have had a volatile year. Cocoa futures contracts started the year at around US$3,151 ($4,045.92) per metric tonne (MT) before surging to US$12,261 on April 19 — a historical high. Since then, prices have fluctuated and futures are trading at around US$7,900 per MT.
The spike comes on the back of various challenges in the industry, discussed at the two-day International Cocoa Conference (ICC) 2024, organised by the Cocoa Association of Asia (CAA), which drew over 600 participants.
Speaking on Sept 12, JSG Commodities head of cocoa and coffee trading desk Eric Bergman says there are challenges facing cocoa production, notably in Brazil and Indonesia, as well as two of the world’s largest cocoa producers: Ghana and Côte D’Ivoire. Both are countries in West Africa.
In Ghana, government programmes that previously supported farmers with fertilisers and disease control have been cut, leading to a decline in production. Many cocoa trees in Ghana are affected by swollen shoot disease, and inflation is making it harder for farmers to continue production, Bergman notes. He adds that illegal gold mining has displaced some cocoa farms, further complicating the situation.
Meanwhile, in Côte D’Ivoire, production has also declined, partly due to ageing trees and swollen shoot disease. While the country had good weather in recent years, production did not increase as expected, signalling deeper structural issues, Bergman points out.
Farmers are not benefitting sufficiently from rising cocoa prices, limiting incentives to improve yields or expand acreage, he adds. Deforestation has also contributed to environmental challenges, making it harder to increase cocoa production.
On the demand side, cocoa consumption correlates with global economic growth and population increase. While demand has remained stable, cocoa grinding — a process that turns cocoa beans into powder — has fallen slightly, reflecting supply shortages rather than a decline in chocolate consumption. “Cocoa in chocolate consumption is luxury goods; it is not a stable commodity — you don’t need it to live. So, if you had to choose between buying either bread for your family and buying a bar of chocolate, the answer is pretty obvious.
“A lot of [the demand] came after the stimulus that was given after the pandemic, where you had the money supply increased tremendously. That led to a lot of inflation, but people were given more disposable income, so they could afford to consume more chocolate,” Bergman adds.
He also notes that consumers’ preferences are evolving. Younger generations are more conscious of food ingredients, while the growing middle class in Asia and Africa could boost demand.
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Beyond the next 12 months, Bergman expects New York cocoa futures prices to settle at around US$4,000 to US$4,500. Although the market is adjusting to a new normal, a projected 99,000-tonne surplus for the 2024 to 2025 season will not significantly ease the tight balance sheet, he adds.
“The key concern is that the market is so tight that there’s no room for error — any production shortfall due to weather or underestimated structural issues in Côte D’Ivoire and Ghana could cause prices to rise sharply. While commercial selling is currently capping prices for 2025 contracts, any future deficits will likely trigger a significant price surge,” says Bergman.
Collaboration is key
On the back of rising demand for cocoa and chocolate in Asia Pacific, there is a need for local production to ramp up, reducing the reliance on imports from West Africa and Latin Africa. The CAA has launched the Asian Cocoa Paper, which outlines the association’s initiatives to increase productivity, share best practices and attract young farmers to secure a sustainable future for Asian cocoa production. Asia currently grinds more than 1.1 million tonnes of cocoa beans annually.
However, the Asian cocoa crop is less than 300,000 tonnes, forcing Asia-based processors to import increasing volumes of cocoa beans from other regions. West Africa, the largest cocoa-producing area in the world, remains the largest exporter of beans to Asia, with about 600,000 tonnes.
Today, Asian cocoa only represents 5% of the world crop. The decline was driven by Indonesia, which used to be the third-largest producer in the world. However, cocoa bean production in the country has more than halved over the past decade on the back of competing crops and ageing plantations.
Collaborative efforts have yielded positive results in Indonesia. With the close collaboration of key stakeholders and the working group within the Cocoa Sustainability Partnership in Indonesia, there have been some notable achievements in planting materials in the past few months.
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The Indonesian government is committed to supporting the growth of Indonesia’s cocoa and chocolate industry, says Indonesian Trade Minister Zulkifli Hasan in his keynote speech. He adds that Indonesia is open to working with all relevant stakeholders to restore Indonesia’s position as one of the main players at the global level in cocoa production and exports.
The minister also outlined four key strategic efforts to drive growth in Indonesia’s cocoa industry, including increasing capacity and productivity, creating a conducive investment climate, promoting value-added industries for cocoa-based products and empowering young farmers to ensure the continuity of cocoa plantations.
Indonesian Trade Minister Zulkifli Hasan (second from right) officially opening the biennial International Cocoa Conference on Sept 12
ESG concerns
Like most players in the agricultural sector, the cocoa industry has faced increased scrutiny over environmental, social and governance (ESG) issues, such as the environmental cost of monoculture farming and reports of slave labour.
Whistleblowing is changing in Asia, says William Gaultier, CEO of the corporate advisory firm Equanimity Group. “Why is it changing? It’s because younger employees have no problems going to the media. They have no problems going to the regulators [and] no problems going to the competitor to divulge information.”
Discussions about “ESG risks” were also called into question. Fellow panellist Aarti Kapoor, founder of Embode, a consultancy focused on human rights and social protection, says: “When we say risk, is it ESG risk? Is it the company? The money? Is it the price of your shares? Who is at risk? How you answer that question reveals where you are at as a company.”
How companies think about such risks reveals their maturity with ESG issues, says Kapoor, who is a qualified lawyer in both the UK and New York. “If you say: ‘We might have a reputational issue with the media’ or ‘Our share price might go down’ or ‘Somebody’s going to do a whistleblowing job on us’, then that also reveals where you’re at on that journey of corporate maturity [and] corporate responsibility.”
Instead, companies should be thinking about the risks to workers in the supply chain, including the children and families of households that grow cocoa, she adds.
As a lawyer, Kapoor advises corporates not to be “caught up in the story” of child or human exploitation, like many media exposes have done. “That’s just a symptom of an underlying problem,” she adds.
Companies should also be “responsible” and talk about the “underlying issue”, says Kapoor. “You need to prep your media departments. The reason you’re working on, let’s say, education for children, registration of workers or something that isn’t that sexy, but is actually going to be protective; is because you don’t want those worse things to happen.”
Genuine concern for the supply chain, or just tactful media planning? Unchallenged by the moderator and her fellow panellists, Kapoor adds: “You need to tell that story like you’re spoon-feeding a child [and] you need to do it in advance. That’s why I say it’s really important to bring your teams along with you and [to] educate them in advance, because these [news] stories that are coming, they’re going to come from nowhere, and preparation is key.”
Photos: CAA
