Industry Invests $1B To Fix Cocoa Production Woes

Chocolate Growers
Via The Wall Street Journal

Abankrom, Ghana — A higher demand for chocolate products driven by Asia and continued diminished cocoa production from Ghana has caused cocoa prices to jump 40 percent since 2012 and forced the world’s largest chocolate makers to invest about $1 billion to fix the problem, according to The Wall Street Journal.

With consumers in China and India increasingly purchasing once-unattainable luxury chocolate bars and bonbons, global demand for chocolate has risen 0.6 percent to a record 7.1 million tons in 2015, largely driven by a 5.9 percent jump in Asian sales, according to research firm Euromonitor International. However, that growth is paralleled by a 3.9 percent drop in cocoa production to 4.2 million tons. (Discrepancies in the weight totals of chocolate and cocoa are accounted for by the addition of milk and sugar during production.)

As supply is lessened and demand increases, the price of cocoa rose about 10 percent while nearly all other commodities fell last year, according to The Wall Street Journal.

In Ghana, the world’s second largest cocoa-growing country, production slid 18 percent compared to the year prior because of disease, dry, weather and shifts in government policy, The Journal reports. However, cocoa harvest in the Ivory Coast grew 2.8 percent due to chocolate companies implementing programs to teach farmers better ways to space seedlings, apply fertilizer and prune trees. Companies are attempting to make the same progress in Ghana as they have in the Ivory Coast.

Barry Parkin, chief sustainability officer for Mars, Inc., told The Journal he realizes that keeping up with demand “will require a big investment,” since there are “still one to two billion consumers around the world that don’t eat chocolate today, and we think they will.”

Chocolate companies say average crop yields are just one-third as big as they could be if all cocoa farmers in Ghana and the Ivory Coast followed good agricultural practices, which could grow to 1,500 kilograms per hectare where as current average output is roughly 500 kilograms per hectare.

It’s estimates such as those that thoroughly debunk the radical scenario termed “chocopalypse,” which is often used to describe a world that has run out of chocolate. But, that’s not going to happen. In fact, the global market ended the latest growing season with a light surplus because the volume of ground cocoa declined more than production due to macroeconomic weaknesses and fluctuating currencies, according to The Journal.

Chocolate makers have a lot to overcome including an increased need for better farming practices, governmental changes in fertilizer policy, a shortage of labor as people migrate to cities, trees that are past peak production due to disease and a debate over the value of grafting new plants onto old ones. However, even if all of that is solved Hector Galvan, senior market strategist at brokerage firm RJO Futures, a unit of R.J. O’Brien & Associates LLC, says there’s still the problem of climate change.

Galvan tells The Journal, “Even if they do continue to improve their infrastructure and pump more and more money into the system, we’re still going to be dealing with Mother Nature.”

Cocoa Production and Consumption Graph
Via The Wall Street Journal