Cocoa market update
Cocoa prices keep soaring. Here are a few reasons why:
Disease and Climate Concerns: One of the main reasons for the increase in cocoa prices is the spread of the Swollen Shoot Virus (SSV) in cocoa trees. Infected trees become unproductive and need to be destroyed to prevent further spread. Additionally, the anticipated effects of the El Niño weather pattern, which could lead to warmer and drier conditions, are expected to impact cocoa production, particularly the midcrop harvest in the upcoming year.
Legislative Changes: New European legislation aimed at curbing deforestation in developing nations could limit the ability of cocoa producers to increase their output. This legislation may have long-term implications for the cocoa industry, contributing to a constraint on production growth.
Market Speculation: The higher prices have attracted market speculators, who have contributed to the price increases throughout much of 2023. However, buyers of cocoa products have been hesitant to commit to additional purchases in hopes of a price drop, which has not occurred, leading to a shortage of cover and forcing them to buy at high prices.
Production Costs and Value Chain Issues: In West Africa, where over 80% of the world's cocoa is produced, the cost of sustainably cultivating cocoa has increased due to factors like depletion of forest land, disease susceptibility, and increased labor costs. These increased costs have not been reflected in cocoa bean pricing, leading to undervaluation and financial strain on farmers. This situation has necessitated a reassessment of the value chain and pricing for sustainable cocoa cultivation.
Reduced Output and Negotiating Leverage: The reduction in cocoa output in West Africa, due to factors such as poor weather conditions, diseases like black pod, and a decline in the number of cocoa farmers, has led to an inability to meet global demand, driving up prices. This crisis presents an opportunity for West African countries to negotiate better deals for their cocoa farmers and address structural issues in the industry.