Chocolate prices could continue to rise if the new cocoa harvest in West Africa disappoints. Cocoa prices have surged by approximately 47% in the past year due to concerns about adverse weather conditions and crop diseases affecting production in Cote d'Ivoire and Ghana, which together account for two-thirds of the world's cocoa supply.

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The potential impact of an El Nino weather phenomenon adds to these concerns, and analysts anticipate a third consecutive global shortage in the new season that has just begun. This could result in continued inflation in the chocolate market, even as food prices overall stabilise. Leading chocolate manufacturers like Hershey Co.

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and Lindt & Spruengli AG have already cautioned about the possibility of further price increases, and there are indications that higher prices are affecting demand in both Europe and the important growth market of Asia. "The current situation is looking relatively dire unless there is a dramatic improvement in the outlook,” said Darren Stetzel, vice president of soft commodities for Asia at broker StoneX.

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"Further price increases could weigh on consumption.” In mid-September, New York cocoa futures reached a 12-year peak, coming remarkably close to a price last observed in 1979, although they have slightly receded since then. This surge in prices was primarily attributed to excessive rainfall and outbreaks of pests and diseases that afflicted cocoa crops in West Africa.

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A crucial concern at the moment revolves around the size of the larger of the two annual cocoa harvests. This harvest has recently commenced in Ghana and is initiating in Cote d'Ivoire. In light of adhering to cocoa traceability regulations imposed by the European Union, which imports 68% of Cote d'Ivoire’s cocoa beans, the sector will face ongoing challenges.

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These challenges encompass issues such as the smuggling of produce and the impact of climate change. Yves Kone, the managing director of industry regulator Le Conseil Cafe-Cacao, underscored these challenges as areas of concern for the cocoa industry's future. "Climate change dangers threaten our cocoa,” Kone said at a ceremony in the capital, Abidjan, to usher in the new season.

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"The task will not be easy because we have the responsibility to maintain the cocoa in good production condition,” he said, without giving an outlook on production.

Cote d'Ivoire in July forecast output from the main crop season that runs from Oct. 1 through March to shrink by almost a fifth from last year, people familiar with the matter said at the time. The amount could still change after some

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farmers held back supplies from the smaller mid-crop in anticipation of higher prices in the new season. The country raised the price farmers will get starting Sunday by 11% to 1,000 CFA francs ($1.61) per kilogramme, falling short of growers’ hopes of a 44% increase. Analysts at Rabobank and Marex expect West African output to drop in the 2023–24 season.

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Marex forecasts the global deficit at 279,000 tonnes, more than the previous two shortfalls combined. The tight market is being reflected along the supply chain. Cocoa factories around the world have slowed the processing of beans into products used in confectionery. Trader Cargill Inc. recently said high prices are starting to dent demand increases in Asia, and Swiss grinder Barry Callebaut AG in July reported lower sales.

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African harvests have also been stifled because farmers have faced higher costs or shortages of inputs like fertilisers and pesticides. Many live below the poverty line and their pay is set by authorities, meaning they don’t immediately benefit from higher futures prices. That’s making it harder to boost or treat ravaged trees.

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Swollen-shoot disease is the most underestimated threat to output in top grower Cote d'Ivoire, affecting about a fifth of the nation’s crop, said Steve Wateridge, head of research at Tropical Research Services. For the new season in Cote d'Ivoire, farmers in the Daloa region expect to collect a smaller crop due to a lack of pods.

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Those in San Pedro say the harvest will be delayed after rains flood plantations, though some Ivorian growers will reap bigger crops due to young trees that are more resistant to disease. Roughly a 10th of last season’s harvest was lost in Ghana’s Kwarbeng, north of Accra, mainly due to black-pod disease and a lack of chemicals, said Michael Acheampong, who supervises more than 1,500 growers.

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There’s a risk that ageing trees mean Ghana’s output is now on a downward trend, Wateridge said. Farmer pay Ghanaian cocoa growers have received a boost with the country initiating its new season three weeks ahead of schedule to mitigate disruptions in sales.

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As part of this effort, the government has increased pay for cocoa growers by over 60% to discourage cocoa smuggling into neighbouring Cote d'Ivoire and to incentivize investment in cocoa cultivation. This increase in pay could potentially lead to higher cocoa production in the future, according to Acheampong.

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However, any potential increase in cocoa output may not immediately translate into lower prices, and concerns persist regarding the impact of the El Nino weather pattern, which could bring dry conditions later in the season and pose a threat to cocoa crops. Furthermore, there are apprehensions that new European regulations aimed at curbing deforestation could result in higher costs for the chocolate industry and, subsequently, consumers.

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For the time being, the performance of West Africa's cocoa harvest remains the primary determinant of cocoa prices. "Chocolate is a luxury good so it does not always follow an elastic price-against-demand correlation,” StoneX’s Stetzel said. "But higher prices will ultimately mean lesser consumers.”

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