Great article. I'm Ghanaian myself. Since independence, the 1st President Kwame Nkrumah used a state owned marketing board to pay a fixed price to cocoa farmers, collect all the beans and sell it on international markets.
The marketing board was supposed to act as a "countercyclical cushion" - when cocoa prices are low, pay farmers more, when cocoa prices are high pay farmers less. Instead it just squeezed profits from the farmers, and people like my grandfather who was a well off cocoa farmers felt squeezed from Nkrumah's low prices, while Nkrumah used the cocoa export revenues to fund his industrialization and infrastructure projects.
The result was farmers would go to nearby Ivory Coast to sell cocoa for higher prices under Felix Houphoeut Boigny's relatively more liberal cocoa policies.
Right now Ivory Coast is not only going to make more money from high cocoa prices but they have been diversifying and adding value:
Not only does Ivory Coast make $3.33B in cocoa beans, but Ivory Coast now makes $1.1B in cocoa paste, $500M in cocoa butter, $200M in chocolate and $195M in cocoa shells (2022 data):
Hannah, one would assume large consumers of cocoa, Hersheys, Mars, and Nestle etc have hedges and/or long term contracts in place so the 4x market price increase y-o-y would most impact small producers so that might be an interesting follow-up. Given the market floors paid to farmers in Ghana, who profits by the windfall might be another interesting angle. Great Work!
This is very interesting. Beyond the obvious implications, it also seems to highlight that as world prosperity increases, demand for luxury agricultural products does too. Thank you Hannah!
Perhaps this might finally convince Republican women that climate change is real? Nah, they'll just blame the price spike on the Libs and tree huggers ...
Orange juice has also experienced a similar parabolic price increase over the past year and for very similar reasons. As we saw during the energy price crisis in Europe during the summer of 2022, parabolic price rises always end at some point. Either demand is snuffed out or supply responds. In the case of cocoa, manufacturers will inevitably begin to substitute other ingredients in to their products to smooth out the impact on the end consumer or reduce the size of the product.
Thanks for this. Sensible as ever. I note that the Ivory Coast is about to raise the farm gate price of cocoa by a lot. This is the price that buyers must pay farmers for cocoa. Given that there is indeed a cocoa shortage and that Ivory Coast farmers are not completely stupid I would guess that they have been waiting for their government to raise the price before they sell their cocoa. Anyone know if this is in fact what is going on and does it explain the massive price spike.
My understanding (from a few visits to a historically cocoa producing region in Brazil) is that one of the reasons Brazil doesn't produce more, relatively, is that there was another plague affecting cacao back in the late 80s-90s (witches broom) which decimated the crop and as a result hugely changed demographics and workforce - a lot of agricultural workers and families displaced to cities. The disease is still around, so I'm not sure how much Brazil would be able to pick production back up.
Great article. I'm Ghanaian myself. Since independence, the 1st President Kwame Nkrumah used a state owned marketing board to pay a fixed price to cocoa farmers, collect all the beans and sell it on international markets.
The marketing board was supposed to act as a "countercyclical cushion" - when cocoa prices are low, pay farmers more, when cocoa prices are high pay farmers less. Instead it just squeezed profits from the farmers, and people like my grandfather who was a well off cocoa farmers felt squeezed from Nkrumah's low prices, while Nkrumah used the cocoa export revenues to fund his industrialization and infrastructure projects.
The result was farmers would go to nearby Ivory Coast to sell cocoa for higher prices under Felix Houphoeut Boigny's relatively more liberal cocoa policies.
Right now Ivory Coast is not only going to make more money from high cocoa prices but they have been diversifying and adding value:
Not only does Ivory Coast make $3.33B in cocoa beans, but Ivory Coast now makes $1.1B in cocoa paste, $500M in cocoa butter, $200M in chocolate and $195M in cocoa shells (2022 data):
https://oec.world/en/profile/country/civ
Ghana, although its the second biggest cocoa market in the world, makes less money selling cocoa beans than Ivory Coast sells in cocoa paste ($1.08B).
https://oec.world/en/profile/country/gha
Ghanaian firms aren't doing as well diversifying and adding value:
Ghana Cocoa paste $450M, cocoa butter $268M, cocoa powder $114M, chocolate $24M. (2022 data)
Hannah, one would assume large consumers of cocoa, Hersheys, Mars, and Nestle etc have hedges and/or long term contracts in place so the 4x market price increase y-o-y would most impact small producers so that might be an interesting follow-up. Given the market floors paid to farmers in Ghana, who profits by the windfall might be another interesting angle. Great Work!
This is very interesting. Beyond the obvious implications, it also seems to highlight that as world prosperity increases, demand for luxury agricultural products does too. Thank you Hannah!
Perhaps this might finally convince Republican women that climate change is real? Nah, they'll just blame the price spike on the Libs and tree huggers ...
"...climate change could be making these conditions more intense." Could be? No, there's no question or equivocation about it
Adding a bit more squeeze to this is the ever increasing number of people becoming wealthy enough to enjoy chocolate.
Thank you for writing about this. I’m afraid this got overlooked during the holiday season.
Orange juice has also experienced a similar parabolic price increase over the past year and for very similar reasons. As we saw during the energy price crisis in Europe during the summer of 2022, parabolic price rises always end at some point. Either demand is snuffed out or supply responds. In the case of cocoa, manufacturers will inevitably begin to substitute other ingredients in to their products to smooth out the impact on the end consumer or reduce the size of the product.
Thanks for this. Sensible as ever. I note that the Ivory Coast is about to raise the farm gate price of cocoa by a lot. This is the price that buyers must pay farmers for cocoa. Given that there is indeed a cocoa shortage and that Ivory Coast farmers are not completely stupid I would guess that they have been waiting for their government to raise the price before they sell their cocoa. Anyone know if this is in fact what is going on and does it explain the massive price spike.
Luckily work is proceeding on artificial cocoa so we won’t be running out of chocolate even in the worst case.
https://www.theatlantic.com/technology/archive/2022/02/lab-made-chocolate-silicon-valley/622888/
My understanding (from a few visits to a historically cocoa producing region in Brazil) is that one of the reasons Brazil doesn't produce more, relatively, is that there was another plague affecting cacao back in the late 80s-90s (witches broom) which decimated the crop and as a result hugely changed demographics and workforce - a lot of agricultural workers and families displaced to cities. The disease is still around, so I'm not sure how much Brazil would be able to pick production back up.
In the first graph, are the prices nominal or inflation adjusted. That should always be made clear.
This is the chocolate hockey stick graph!