Platinum Ticket to the Chocolate Factory

In the world of commodities, cocoa has reached remarkable highs during the last few months since the end of last year. The price of cocoa beans has risen very fast and in a relatively short amount of time, reaching and passing the record price of $ 10,000 per ton. This is unheard of, and the price of chocolate for consumers increased as a consequence in the last two quarters. Globally, the largest cocoa growing countries are two: Ghana and the Ivory Coast. Together they account for 60% of total cocoa production in the world. They are followed by Nigeria and Cameroon in Africa, and notably Ecuador, which accounts for almost 10%, in Latin America.

In the chocolate industry, one of the most affected by the ever-rising price of beans is Barry Callebaut, the world’s leading manufacturer of high-quality chocolate and cocoa products with a market capitalization of $ 7.5 billion. The Swiss-based company faced significant headwinds with negative developments in the cocoa environment in West Africa, characterized by poor crops for the third straight year. This implied a supply deficit, resulting in unfavourable price dynamics. All in all, despite the price pressure and the inflation weighing further on the business, Barry weathered the ‘cocoa crisis’ and is now better positioned and well capitalized. With volume growth expected to pick up in the coming months, a restructuring process in its portfolio and operations is in place. Additionally, the company achieved a more optimal pricing structure to operate in the current environment, with a cost-plus pricing model.

The cocoa beans price dynamics are likely to stay, at least for a while. Weather events will continue, with fluctuations between hot arid conditions, more humid and wet temperatures. Adverse conditions are a direct obstacle for cocoa trees, where leaves are affected and yields are reduced. The difficult seasons prevent the planting of new trees. Farmers of cocoa are the ones that face the highest risk, particularly in regions where price setting controls are not in place. In fact, one main difference between Ecuador vis-à-vis Ghana and the Ivory Coast is that the Latin American country is a free market, with set price controls that allow for more certainty and protection from price fluctuations. Let’s see how prices of cocoa develop in the future months. For now, prices have been and will continue to be passed along with higher costs to consumers. What used to be the golden ticket to the chocolate factory, is now the platinum ticket. Natural, pure, of high density, just like chocolate.

We thank you for your continued support.

The FAM team


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