High cocoa prices worldwide and the local energy crisis is hurting South Africa’s small chocolate manufacturers – and the high costs could soon be passed on to consumers.
Co-founder and owner of local craft chocolatier De Villiers Chocolate Pieter de Villiers said a combination of short- and long-term factors had played a role in the cocoa price skyrocketing.
The Wall Street Journal reported that benchmark cocoa futures prices in London have surged by more than 32% this year. Cocoa prices are at their highest levels since at least 1985.
De Villiers pointed to three main factors that have led to these high cocoa prices:
- Increased demand.
- Ageing cocoa farms and farmers.
De Villiers told 702’s The Money Show that the increased demand for cocoa is largely coming from the East.
According to the International Cocoa Organisation (ICCO), global demand for cocoa during the season that ends end-September will exceed production by 142,000 metric tons, equivalent to around 355 million pounds of chocolate bars. This shortfall will leave end-of-season stocks down 8% from a year earlier at 1.6 million tonnes.
Ageing cocoa farms – related to cocoa farmers and trees – play a significant role in this shortfall.
De Villiers explained that cocoa farming often occurs on a small scale and is done by low-income farmers.
The Ivory Coast and Ghana are the world’s two largest producers of cocoa and account for more than 50% of the world’s cocoa.
However, De Villiers said African cocoa plantations are typically only around one hectare in size and are often run by older farmers, as younger generations tend to migrate to the city.
In addition, cocoa trees typically have a lifespan of around 30 years, and many of the trees on these plantations are far older, leading to significantly lower yields.
One of the longer-term factors affecting the cocoa industry is the weather. West Africa has had excessive rainfall, especially in the Ivory Coast. And while these excessive rains do not affect the cocoa right now, they will affect the commodity in the future, De Villiers explained.
The cocoa harvest starts in October of this year and lasts until March. However, rains in June could impact the harvest in two ways:
- Pod rot could occur, which would render the pods unharvestable.
- The humidity in the plantation could make it more susceptible to pests.
De Villiers said these three factors behind the rise of cocoa prices mean chocolate will become more expensive, especially high-cocoa content chocolate.
He explained that bigger chocolate makers do not feel these “price knocks” as much as smaller businesses, as they typically buy their crop a year in advance with a fixed price.
“I buy a container typically every three months, and we typically see an increase in the cocoa price,” he said.
“If you take the impact of the increased cocoa price in conjunction with our own currency, we’re sitting with an excess of 60% increase just on cocoa between last year and now.”
In addition to these factors, local businesses face the effects of load-shedding on their operations – and chocolatiers are no exception.
“We do a lot of primary processing and, depending on how much production, probably about 10, 20, 25% of our input cost is electricity. And, with load-shedding, we had to halve our production over the period.”
“It’s quite rough for a small chocolate manufacturer,” he said, adding that many manufacturers have had to resort to using lower quality, cheaper ingredients like palm oil to cut costs.