Who benefits from the rise in cocoa prices?

The rise in prices of cocoa in the financial markets has caused chills throughout the sector, but it benefits cocoa growers, bean processors, speculators and chocolate makers to an unequal extent.

Prices soared in March, hitting a record high of more than $10,000 a tonne in New York.

The rise is explained by a poor harvest in West Africa, due to adverse weather conditions and devastating diseases in aging plantations.

Prices have since dropped, but are still three times higher than last year.

Big differences between producers

In Côte d’Ivoire and Ghana, the world’s two largest cocoa producers, the authorities set prices in October “based on prices from previous months”, but by then the crops “They have already been largely pre-sold.”explains Tancrède Voituriez, from the Center for International Cooperation in Agronomic Research for Development (CIRAD).

This reduces the impact of price fluctuations, both up and down. As a result, small producers, who generally earn just enough to live on, did not immediately benefit from the rise.

In April, however, the authorities raised the price of the intermediate crop by 50%, which placed between 2,300 and 2,500 dollars per ton paid to the producer.

In other countries where the system has been liberalised, such as Cameroon, Nigeria, Ecuador and Brazil, producers have made more profits by selling their beans to buyers willing to pay prices close to those of the financial market.

David Gonzales, coordinator of the Peruvian Chamber of Coffee and Cocoa, however, warns of the risks of a backlash.Rising prices have made production more attractive”, he explains to AFP.

The risk is that an oversupply will occur within 3 to 5 years, by which time new trees will have grown and prices will have fallen sharply.

The interest of intermediaries

The large processors that grind grains into butter, liquor or powder (the Swiss Barry Callebaut, the American Cargill or Olam of Singapore) have usually negotiated much of their supplies in advance.

But some contracts have not been fulfilled, forcing them to urgently search for beans at a high price and, at times, to slow down production in their factories.

Barry Callebaut indicated at the beginning of April that he had used his treasury more than usual to finance his purchases, but that he had enough cocoa to meet demand.

Other smaller intermediaries may have difficulty advancing the funds necessary to adapt to the new environment.

“Smugglers are probably rubbing their hands”buying slightly above fixed prices in Côte d’Ivoire and Ghana, and selling at market prices from Togo, Guinea, Liberia or Sierra Leone, says Steve Wateridge of Tropical Research Services.

Bet on the opposite trend

The International Cocoa Organization explains that prices have skyrocketed because supply has been less than demand for the third consecutive year.

Investment funds have sensed this and have opted for a rise in prices, reducing profits in the process.

But starting in January, prices became very erratic, even for hedge funds, and many pulled out of the markets.

The number of contracts traded fell from 334,000 in mid-January to 146,000 in April, explains Ole Hansen of Saxo Bank. “Speculators cannot be blamed for artificially inflating prices” says Steve Wateridge.

Chocolate traders and manufacturers, for their part, often protect themselves from price changes by betting on the opposite trend in financial markets, in this case betting on a fall.

As prices rose, some had to deposit additional funds in their banks to cover potential losses. Others had to abandon their bets, which technically requires them to buy contracts back on the market, pushing up prices.

Chocolatiers adapt

Given the time that elapses between the purchase of raw materials and production, the cost of chocolate bars currently sold should not, in theory, have skyrocketed for industry giants Mars, Mondelez, Nestlé, Hershey’s and Ferrero.

“We are amply covered by our upcoming contracts for the rest of the year”Nestlé boss Ulf Schneider confirmed in April.

This situation may change in the coming months. In order not to discourage consumers already affected by inflation, manufacturers could increase the proportion of hazelnuts or reduce the portions.