No sweet deal for chocolate lovers

Adverse weather conditions in chief producing areas may hit supply of cocoa

If you are a chocomaniac, be prepared to pay more for your favourite chocolate bar. That’s because, after falling sharply in early 2016, the price of cocoa, which is the principal ingredient that goes into making chocolate, has been on an upward spiral. And this is not good news for India, given that we import a substantial portion of our cocoa requirement. This is not all. Thanks to Brexit and the consequent depreciation of rupee against dollar, imported cocoa has become dearer now. And this is not good news for Indian chocolate manufacturers, who import cocoa.

Before we check out why cocoa prices will head up in 2016, let us first understand the demand-supply dynamics of cocoa.

Ivory Coast is the world’s largest supplier of cocoa, accounting for nearly a third of the world’s cocoa. Global confectionery giants such as Nestle and Cadbury get their cocoa supply from this market. Other key cocoa producing nations are Ghana, Indonesia, Nigeria and Brazil, among others. While Ivory Coast has managed to sustain production growth over the last years, Indonesia, which is also a large producer, has seen production decline in the last four years. Cocoa output from Ghana, the second largest market, has been flat compared with 2012-13.

Drop in production

In 2015-16, global cocoa production is expected to be lower than in 2014-15. Inadequate rainfall and adverse weather conditions in Ghana and other parts of Western Africa could lower cocoa production this year.

Also, extreme weather conditions, resulting from the severe Harmattan winds within the West African region, combined with the impact of El Niño, are said to have negatively impacted cocoa harvest in 2015-16.

And it is not just Ghana which is expected to be hit by unfavourable weather conditions. The output and quality of the mid-crop in Ivory Coast may also be impacted this year. The persistent dryness in these regions is believed to have lowered the survival rate of flowers and small pods.

Brazil, the other leading cocoa producing nation, is also expected to close the year with a lower output. The International Cocoa Organization (ICCO) recently revised downward the country’s harvest estimate to 2.1 lakh tonnes. This is largely on account of inconsistent rainfall pattern — rainfall, which was lower in the initial season, picked up late in the season. This not only delayed drying and transportation but also resulted in higher pest incidence.

Production in Indonesia is also anticipated to be lower in 2015-16, compared with the previous year.

The ICCO estimates production for 2015-16 at 4.04 million tonnes, 1.94 lakh tonnes lower than last year. The supply deficit is likely to be around 1,80,000 tonnes, higher from the initial estimate of 1,10,000 tonnes.

Steady demand

Even as cocoa production and supply has been volatile, demand has been steady. In 2015-16, cocoa consumption is estimated to have been higher at 4.179 million tonnes, 34,000 tonnes more than in 2014-15.

This is what stoked prices globally. Besides, weak production forecast and a higher grind in key Asian markets such as Indonesia, too, helped. The price of cocoa futures contract traded on Nasdaq, which was hovering around $2,800 a tonne early this year, has gained over 10 per cent and currently trades at around $3,100.

Over the last few years, there has been a steady increase in cocoa consumption, led by the healthy demand from the chocolate confectionery market. At the same time, production has been volatile. As a result, in the long term, too, demand is expected to outstrip supply; this should keep cocoa prices strong.

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get

This article is closed for comments.
Please Email the Editor