From weather to financial dynamics, including new European regulations. A lethal mix for processors and consumers.

Chocolate has to deal with the surge in cocoa prices which puts pressure on the processors' margins and consumers' pockets. Creating the conditions for a negative spiral from which it could become difficult to escape.

The reasons behind the price boom

Starting from the numbers, over the last year cocoa prices have almost quadrupled (reaching 10 thousand dollars per ton, approximately 9,200 euros) mainly due to the bad harvests recorded by the main producing countries, namely Ivory Coast and Ghana, affected by penalized atmospheric phenomena such as extreme heat. Furthermore, rising pesticide and fertilizer prices have put pressure on farmers, making it difficult to purchase these vital crop ingredients, thus leaving more room for pests.

Furthermore, hedge funds, investment funds that bet on prices  futures, even by buying assets short, have amplified the trend.

Price alert on the distribution chain 

Thus, from ice cream to chocolate bars, from cocoa-based drinks to snacks, many products on the shelves are struggling with this scenario. Big names in the sector such as Lindt and Nestlé they have announced price increases, also to be achieved through a reduction in the weight of chocolates and similar (so-called Grammar ), a policy already implemented last winter by small/medium processing industries, which were forced to reduce the weight in order to maintain a shelf price that was still convenient for consumers. 

It must be said, however, that the impact has been limited so far, given that distribution companies – in most cases – have secured stable prices in the past through long-term contracts (so-called). Forecast ), preferring, in this case, a planned and spread-out increase in stocks, rather than having to, necessarily, increase prices to the consumer with the associated risk of unsold goods.

The impact of the legislation

To the factors already mentioned we must add the Community regulation on deforestation, which will impose strict controls on the procurement of agricultural materials, aiming to prevent the felling of trees to make way for crops like cocoa. Before it comes into force, some processing operators have decided to stockpile cocoa beans already in European warehouses and therefore exempt from the new regulation, further boosting prices. The risk is that this will further fuel the downward spiral, complicating the return to normality.