In recent months, the global cocoa market has witnessed unprecedented price volatility, capturing the attention of industry and consumers alike. On April 2024, cocoa prices soared to a historic high of $11,206 per metric ton, a stark contrast to the $4,275 per metric ton seen just six months prior. This dramatic fluctuation reflects a complex interplay of factors influencing the cocoa industry and implications.

Understanding these price fluctuations is crucial. The change in cocoa prices conditions the entire supply chain: farmers in cocoa-producing regions, chocolate companies, and end consumers purchasing chocolate products.

Factors contributing to cocoa price volatility  

El Niño phenomenon and crop diseases

The El Niño weather pattern has significantly disrupted cocoa production in major producing countries. Characterised by high temperatures and low humidity, El Niño conditions have severely impacted cocoa harvests in regions like Ivory Coast and Ghana, accounting for approximately 70% of the world’s cocoa supply. The International Cocoa Organization (ICCO) reported that arrivals at Ivorian and Ghanaian ports were down 28% and 35%, respectively, compared to the same period last season.

Adding to the challenges posed by El Niño, ICCO (2024) reports crop diseases such as the swollen shoot virus have devastated large swathes of cocoa plantations. In Ghana alone, swollen shoot disease has wiped out 500,000 hectares of farmland. This has led to a projected percentage reduction in Ghana’s cocoa production by 40% for the 2023/24 season, marking it the lowest in 14 years. Such significant reductions in output from key producing regions inevitably tightened global supply, resulting in upward pressure on the market price.

Investor Speculation

Investor activity further contributed to price volatility. According to a report by J.P. Morgan on 3rd April 2024, the initial supply issues exacerbated by dry weather conditions were intensified by investor speculation. Non-commercial investors, who were not directly involved in the cocoa industry, used to control over 60% of cocoa investments in the New York stock market. Even though by February, their positions had reduced to 18%, the influence of these investors continued to drive significant price movements until the end of April. In the latest reports, we see prices closer to the reality of supply and demand in the current market. 

The Impact of EU Regulation on Deforestation-free Products (EUDR) which was designed to combat deforestation, could potentially impact the market. These regulations require cocoa-producing countries to implement comprehensive due diligence processes, including traceability systems, data collection, verification of producers, assessments of deforestation risks, and active monitoring of deforestation and human rights enforcement. The long-term effects of these measures on the cocoa supply remain uncertain as the industry adjusts to these new compliance and monitoring requirements.

There is still some concern about the implications of implementing the regulation, as there is no official consensus on its parameters. It is still uncertain whether the regulation will generate additional pressure on supply and impact prices. 

Are farmers benefitting from this price context?

Price volatility poses one of the biggest challenges for cocoa farmers. High levels of uncertainty make it difficult for farmers to plan their production and manage their finances. Ensuring that farmers receive fair and stable prices for their cocoa is crucial for maintaining the sustainability of the supply chain.

At Luker (our chocolate company in Colombia) are committed to ensuring farmers receive a high percentage of the cocoa market price. In 2022-2023 they paid 94% of the New York Stock Exchange (Free on Board – FOB) price for their cacao, including bonuses for quality characteristics and sensory profiles, paid to suppliers.

In April, the average New York LON Futures announced prices to farmers at $9,877. During the same period, the average price paid in Ghana and Ivory Coast was $2,173, while the average price paid by Luker was $8,025.

Prices received by farmers in the Luker supply chain, compared to the global price from may 2023 to april 2024

This increase in income has reflected in higher quality of living for farmers and also the opportunity for them to invest in their farms through better infrastructure, fertilization, crop maintenance, among others. This positive outcome will also help ensure a stable sourcing in the coming years, as the effect will be seen in the following harvests.

Collaborative work with farmers goes beyond fair pricing. Luker engage in weekly purchasing agreements, which provide a steady income for farmers and help them plan their production more effectively. This consistency is crucial, especially during market instability, as it ensures that farmers can invest in their farms and sustain their operations in times of higher prices, allowing them to navigate the impact of market volatility on their livelihoods when lower prices hit.


The way forward

These have been exceptionally challenging times for everyone involved in the cocoa industry. Higher prices are not always transferable and we have all had to sacrifice short-term profitability to ensure long-term sustainability. We have tried to absorb some of the cocoa cost increases, however, we have had to increase prices to maintain our commitment to our chocolate company which in turn help the small farmers and secure the cocoa needed to keep  manufacturing.

We are working hard to adapt and navigate this difficult time, we are committed to our customers.