In 2024, cocoa prices reached an unprecedented high, surging to a remarkable $5,874 on the New York commodities market, as reported by the BBC. This surge marked the culmination of a more than two-year upward trend in prices, sending shockwaves through the confectionery industry and ultimately impacting consumers.
Michele Buck, the president and CEO of the Hershey Company, warned of the potential consequences during an earnings call on February 8. She noted that historic cocoa prices were expected to constrain earnings growth for the year, signaling a continuation of the trend observed in the company’s fourth-quarter financial results for 2023, which saw a net income decrease of 11.5%. Hershey was not alone in facing these challenges, as Cadbury also identified rising ingredient costs, including cocoa and sugar, as significant obstacles.
The Swiss Platform for Sustainable Cocoa reported that nearly 5 million tons of cocoa were produced globally in the last cocoa season, with the majority (60%) originating from Côte d’Ivoire and Ghana, followed by Ecuador at just 9%.
Cocoa cultivation, much like coffee, is vulnerable to the effects of climate change. The 2023 Fairtrade Foundation’s Endangered Aisle report warned that cocoa-growing regions such as Côte d’Ivoire and Ghana could become unsuitable for cocoa cultivation by 2050 due to rising temperatures. Furthermore, the current El Niño weather pattern has resulted in drier-than-normal conditions, significantly reducing yields.
Agri-Way Partners reported on February 21 that the Ghana Cocoa Board slashed its production forecast for 2023-2024 to a 14-year low due to adverse weather conditions, crop disease, and smuggling. Smuggling alone led to the loss of 150,000 tons of cocoa in Ghana during the previous season, amounting to $600 million in lost revenue. This situation has become so dire that cocoa farmers may be unable to fulfill their contracts for a second consecutive season, leading to disruptions in cocoa processing.
Consumers should brace themselves for higher prices, as retail chocolate prices in the U.S. surged by 10% in 2023, outpacing consumer inflation by threefold, according to Investopedia. Hershey’s responded by increasing prices on its confectionery chocolate and other candy products by 9% in North America. Buck indicated that the company would explore various strategies, including workforce reductions, to mitigate the impact of soaring cocoa prices on its bottom line.
Despite the challenges posed by historic cocoa prices, Buck expressed confidence in Hershey’s ability to drive top-line growth through robust marketing plans, innovation, and brand investments aimed at meeting evolving consumer preferences.