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The International Cocoa Organization is concerned about the impact that the war in Ukraine could have on the world market. Cocoa prices have not been affected so far, but this could happen quickly, due to an inevitable drop in demand.
For now, the cocoa market is resisting. After falling last week, prices have risen to around $2,450 per tonne. But how long will this last? Several grinders say they fear a drop in prices, which would force them to sell the beans already purchased at a lower price. Ditto on the side of the International Cocoa Organization. In its latest report, the ICCO expresses its concern at seeing the market disrupted by the war in Ukraine. The main factor that is likely to weigh on prices is a drop in demand.
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Global demand is likely to decline
Russia-Ukraine consumption represents 5% of the world market – 40,000 tons of equivalent beans imported during the previous season in Ukraine, 165,000 tons for Russia. Imports to Ukraine are stopped, those to Russia should only decrease. It is therefore an additional volume of cocoa that will weigh on the market if the conflict drags on over time, since it will be difficult to find new outlets. The other fear of players in the sector is a drop in global demand, due to a drop in purchasing power. Conflict-related increases in energy costs are likely to weigh increasingly heavily on household budgets. As a result, chocolate, a non-essential food, could be shunned, as happened at the start of the pandemic.
The next quarter will therefore be decisive for evaluating the surplus volume on the market, if there is a surplus, following the war. Like many sectors, cocoa will be affected in the second line and therefore delayed.
Individual producers could quickly suffer from soaring fertilizer prices. Cocoa plantations consume little compared to other crops, but given the extent of the areas planted and the need to fertilize aging land, purchases are not negligible, explains an expert. And inevitably they will be revised downwards, given the price of inputs.
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