Chocolate manufacturers such as Hershey have warned that rising cocoa prices could stunt earnings, as well as cause prices to be passed on to consumers.
ADVERTISEMENTThe price of Cocoa soared 19.23% this week, clocking in at an all-time high of $5,909 (€5489.6) per tonne, due to dry weather impacting cocoa harvests in West Africa.
This was following this year’s Harmattan winds being harsher than usual in major cocoa producing countries, such as Ivory Coast and Ghana.
Cocoa prices are now about 40% more expensive than they were at the start of this year.
Chocolate giant Hershey warned that cocoa prices rising to unprecedented levels could seriously put a dampener on earnings this year.
Hershey Chief Executive Officer Michele Buck said on a call with analysts, as reported by BBC: “We can’t talk about future pricing given where cocoa prices are. We will be using every tool in our toolbox, including pricing, as a way to manage the business.”
This could mean that consumers could very well face higher prices for their sweet treats soon. This could come as an added shock when so many consumers are already dealing with higher prices for several everyday items, due to inflation still being somewhat high.
Why are cocoa prices rising so much?
The world is currently experiencing the El Nino Southern Oscillation (ENSO), which is a natural climate phenomenon, which occurs when tropical eastern Pacific sea surface temperatures rise at least 0.5 degrees above their long-term average.
However, this can have sometimes disastrous consequences on several crops, as it also impacts winds and climate, causing 2023 to already be the hottest year on record. Now, 2024 may be poised to overtake that record.
Cocoa is extremely vulnerable, as it is very sensitive to any kind of weather changes, especially warmer weather. Hotter and drier weather can also bring diseases to the crops causing a poor harvest and potentially having long-term effects on the quality of the farming land.
While Harmattan winds are seasonal and normally expected, the current El Nino situation faced by the world is inflaming these even more, causing the fallout. As harvests continue to be poor, cocoa prices may keep rising for the foreseeable future.
From 1 October 2023 to 4 February 2024, Ivory Coast shipments of cocoa were down about 39% from the previous year, at 1.04 million metric tons. Similarly, Ghana’s sealed and graded cocoa arrivals also fell about 35% to 341,000 metric tons from 1 September 2023 to 31 January 2024.
Could this trend continue to impact cocoa and other confectionary ingredients?
Due to climate change, weather phenomena is unlikely to improve, and may keep getting worse in the next few years. This could mean different rainfall patterns, hotter weather in some areas, but colder weather in others. Some parts of the world could also see extreme weather events such as flooding and forest fires.
Sugar prices are also rising significantly recently, due to parts of India, the largest producer, also seeing poor harvests due to extended periods of extreme dry weather.
Jack Scoville, a Price Futures Group analyst, told the BBC: “Traders are worried about another short production year and these feelings have been enhanced by El Nino.”
