Chocaholics—Why You’re Fix Isn’t Getting Any Cheaper

Is a pandemic-era fix on the way for ailing cocoa trees?

I used to go through a lot of chocolate. Then I saw the smaller size of the bags and started rationing. I wondered if prices would go back down in the future—just as the price of produce dropped in the US after the supply chain healed in 2023 and 2024. The answer is probably not.

Train a parrot…

If you want to train an economist, train a parrot to say supply and demand.

Prices go up because demand went up or because supply fell. As was true of many of the price increases during the pandemic, supply was and is still the culprit.

When prices are rising, the first place to look is at the cost of the ingredients or materials that make up the good. For gasoline, it’s crude oil. For chocolate, it’s the beans of the cacao tree, sometimes called cocoa beans. As the cost of the ingredients rises, prices rise.

A quick note on semantics: prices are what consumers pay; costs are what producers pay.

The cost of cocoa doubled during the first part of this year. Disease and drought caused losses in cocoa production. But the problems with cocoa production are not new.

Forces driving the industry

Water is the driving force of all nature—Leonardo da Vinci

There are many forces that cause supply in an industry to change—external and internal. A company within an industry can do little about external forces. In the case of cocoa farming, most farmers also have little control over the cost of inputs or the price.

Market speculation drove costs up, since chocolate makers lay in cocoa supplies ahead of time, and investors saw rising prices ahead. This is similar to what happened to oil after Russia invaded Ukraine and after bombing started in the Red Sea. But other factors also drove the cost of cocoa up.

The ongoing war affected the cost of fertilizer for cocoa bean farmers, as well.

El Niño and crop disease

El Niño disrupted weather patterns in many tropical areas, where cocoa trees grow.

El Niño is part of the El Niño-Southern Isolation cycle. Since May 2023, West Africa, where about 50 percent of cocoa trees grow, saw lower than average rainfall. West African farmers have also deal with Harmattan winds from the Sahara during the winter. The winds are responsible for poor water retention and seedling growth.

Cocoa trees in the Americas can suffer from frosty pod and pod rot disease. In Côte d’Ivoire and Ghana, the trees can contract cocoa swollen shoot virus. Mealybugs carry the virus.

The disease is responsible for 15-50 percent of the lost harvest.

Farm gate pricing

Ninety (90) percent of cocoa trees grow on small farms. This means that each farmer has little negotiation power. Concentration in manufacturing and cocoa bean trading dictates lower prices for cocoa beans.

The buyers of cocoa beans pay “farm gate prices.” In Ghana, for instance, prices are set by the government.

The low prices set by manufacturers and traders haven’t compensated farmers for production lost due to disease and lower rainfall. Some farmers are resorting to smuggling their beans out to get higher prices.

Chronic underinvestment

One of the side effects of small farming and artificially low prices for cocoa tree farmers is chronic underinvestment. Cocoa trees are aging and replanting rates are low.

Most farmers and their workers don’t make living wages. There’s nothing left to pay for replanting.

Some good news

There’s good news for cocoa farmers, though. La Niña will soon replace the El Niño weather pattern.

And there’s a new study that shows a potential solution to the mealybug problem: placing the cocoa trees further apart to prevent the bugs from spreading. Sound familiar?

Will prices go down? Probably not by much, if at all. Chocolate is a good with “sticky prices.” On the other hand, more consumers are switching to other types of snack foods. Since it’s apple season, I’ve replaced my afternoon sweet with a Granny Smith.

But there’s a bag of nuggets waiting for me in the freezer when I just have to have chocolate.

Thanks for reading.

Nikki

PS: I’m planning my next crash course on employment. I also have a small book coming out that collects (and cleans up) my inflation posts.