Steep increases in the price of cocoa could leave shoppers disappointed this Easter, with many chocolate products experiencing “shrinkflation”, as producers increase prices and limit portion size to offset supply costs.
Year-on-year global cocoa prices have increased as much as 245%. While UK food inflation is currently at 7%, these figures put chocolate at 30 times that.
Marco Forgione, director general of the Institute of Export & International Trade (IOE&IT), said:
“As many people across the UK, and the rest of the world, look forward to tucking into their Easter chocolate this year, few are likely to stop and think about the intricate supply chain required to get the ingredients to us.”
Supply chain struggles
Vulnerable supply chains stretching into Africa and South America are contributing to these rising chocolate prices.
In Africa, heavy rainfall and diseased crops have hampered output from the world’s two largest cocoa suppliers, Cote d’Ivoire and Ghana.
Forgione said that this “chocflation” is a powerful reminder of the increasing precarity of global trade.
“Over the past few months, we’ve seen the weaponisation of fragile global supply chains, which has caused significant disruption due to events such as the ongoing situation in the Red Sea, wider global geopolitical uncertainty and a variety of updates to border policies.
“Combined with the impact of climate change, which has significantly dampened this year’s cocoa harvest, the price of chocolate is soaring.”
Financial shock
Bloomberg reported that the protracted shortage has led to cocoa futures rising to an unprecedented US$10,000 in New York on Tuesday (26 March), which is bad news for chocolate-lovers as many producers will continue to pass on these heightened supply costs to customers.
Leading South American growers, such as Brazil and Ecuador, are seeking to increase their production to meet global demand but, given the delay between newly planted crops bearing beans, it’s not expected that these will alleviate the shortage for several years.
The International Cocoa Organization (ICO) is already predicting a large production deficit in 2024, the third consecutive year for cocoa, with predictions for a fourth in 2025.
Such a lengthy shortage could spell bad news for traders too, as commodities expert Javier Blas noted, with the protracted bull market conditions created by these sustained shortages leading to a credit crunch among trading firms as they find it harder to raise the funds needed to cover hedged short positions.
Long-term issues
Figures show a stark increase in the price of chocolate over time, with the ‘Freddo Index’ highlighting that over the past two decades the cost of the mini chocolate treat has soared by over 150%. Another Cadbury’s product, the Easter staple Mini Eggs, is also up 28%.
The Observatory of Economic Complexity (OEC) notes that in 2022, the UK was the world’s fourth largest importer of chocolate, buying US$2.29bn worth of the sweet stuff, suggesting the problem won’t be going away any time soon.
Bloomberg also notes the shaky ESG foundations on which the industry is built – the chronic underpayment of cocoa farmers being an ongoing, unresolved issue. Other labour problems, such as children being used in the production process, have also failed to be addressed.
Efforts to stamp out human rights abuses in chocolate supply chains have largely failed, with investigations finding child labour in the processing facilities of purportedly ethical brands.
Build stronger supply chains
Forgione highlighted that the underlying vulnerabilities contributing to rising food prices necessitate strategic thinking and longer-term solutions around how supply chains are built.
“Although other factors such as ‘chocflation’ are potentially at play, from the perspective of international trade, we need to look at how we can build resilient and less fragile supply chains to protect consumers.
“We need a global co-ordinated approach, focusing on prioritising the digitalisation of supply chains. By implementing digital processes to replace legacy, paper-based systems, shipping processes can be streamlined, improving efficiency and accuracy, which saves businesses time and money.”
These measures can also be used to reduce human rights violations, with technological advances in supply chains increasing visibility in the lower tiers where production takes place.