2024-03-03 15:58:57
Cocoa prices on world markets have reached record levels due to the damage caused to plantations in major producing countries in West Africa, BTA reported. Harvests at the end of 2023 were at a very low level and no improvement is expected in the coming months. In mid-February, on the New York market, cocoa cost $5,888 per ton, which is 40 percent more than at the beginning of 2023. In London, the price has even doubled, reaching £4,757 per tonne.
The countries where the damage to plantations is significant are Ivory Coast and Ghana, which together supply 70 percent of the cocoa beans in the world, writes the Italian edition “Internationale”. The adverse weather conditions affecting the cocoa crop are due to El Niño, a climate phenomenon that warms the sea surface in the tropical Pacific and Atlantic belts, causing irregular rainfall alternating with warm and dry weather.
Local growers have also faced a series of plant diseases caused by excessive humidity. Some major chocolate producers, such as the American company Hershey, have warned that rising prices of raw materials will reduce profits, given that the situation will not change for the rest of the year. Already in the last quarter of 2023, the company recorded a 6 percent drop in profit, as consumers reduced demand after the spike in inflation.
The increase in the prices of the much sought-after raw material and the prospect that the trend will continue in 2024 have led many financial operators to resort to speculative operations, deepening the problem. Since the end of 2022, some hedge funds have invested $8.7 billion in the New York and London markets to secure futures contracts expiring in March, the Financial Times reported. These are agreements based on which one party agrees to buy a commodity at a certain price, but with a future deadline, with the presumption that a possible increase in the price will allow it to make a profit.
“Right now, hedge funds have unprecedented exposure to cocoa. They are not the cause of price increases, but in a market that is characterized by a low level of liquidity, they can deepen some trends to extreme levels.” This is according to Martin Born, who was responsible until 2022 for the cocoa and chocolate operations at Cargill, the American colossus in the trade of agricultural raw materials.
Investors are focused on cocoa, using super-fast computers and algorithms that trigger large amounts of orders in seconds. According to the experts of the French bank “Societe Generale” (Societe Generale), in recent months cocoa is the product that has contributed the most to their profit.
The higher futures price won’t make Ghanaian and Ivorian cocoa producers, who currently get between $1,600 and $1,900 a tonne, any richer. These prices reflect sales completed 12-18 months ago, Fuad Mohammed Abubakar, director of the Ghana Coca Marketing Company, which is partially controlled by the Ghanaian government, told the Financial Times.
The February hikes will put something in the growers’ pockets by October, at the start of the new season, the director added.
It is the fact that for years small-scale cocoa farmers in West Africa settled for low prices and continued to grow these trees because it was the only way they could escape extreme poverty that allowed consumers in the rest of the world to “enjoy the pleasure of chocolate” without spending much, notes “Bloomberg”. “Unlike agricultural raw materials, no industrial plantations have developed with cocoa, simply because it would not be appropriate given the prices of recent years. The bulk of the profit always goes to those who process the seeds to turn them into chocolate, not to those who grow and harvest them,” the agency notes.
Until now, these farmers have been cash cows for governments profiting off their backs, seed traders and the food industry. However, now, after decades, the system can no longer cope with the ever-increasing demand: according to experts in the sector, in 2024 there will be a gap between demand and supply, which will vary between 300 and 500,000 tons – the highest level for the last 65 years.
Chocolate factories will have to use up all the stocks in their warehouses and will not be able to replenish them, because in West African countries the cocoa trees are relatively old and need to be replaced in the coming years. Ultimately, this crisis is necessary because more funds are needed to plant new cocoa trees, to use fertilizers and pesticides, and to slow demand that is proving unsustainable.