A little bit of history about cocoa
Cocoa or cacao is often called the “food of the gods.” It boasts a rich history that stretches back over 3,000 years to ancient Mesoamerican civilizations. The Olmecs were the first to cultivate cacao, creating a frothy, bitter beverage from its beans. This practice was later adopted by the Mayans and Aztecs who revered cocoa, using it in religious rituals and even as currency. When European explorers encountered this exotic drink in the 16th century, they sweetened it with sugar. This sparked a chocolate craze that transformed it into the beloved treat we savor today. From ancient ceremonies to modern candies, the journey of cocoa reflects a unique story of culture, innovation, and economics.
Today, cocoa is derived from the beans of the cacao tree, also known as theobroma cacao. The cacao tree thrives in tropical climates near the equator. It is mostly grown in countries including the Ivory Coast, Ghana, and Indonesia. Cacao trees require a humid environment with rich, well-drained soil. When the cacao pods are harvested, the beans are extracted, fermented for days, and dried in the sun. This process develops the distinct flavors which makes cacao beans so unique from region to region, country to country and farmer to farmer.
After the harvesting, fermentation and drying processes are completed, the dried beans are shipped to chocolate manufacturers and bean to bar chocolate makers. Once at the chocolate maker, the beans are typically roasted, cracked, and ground into cocoa mass. This mass can be further processed into cocoa powder and cocoa butter. These are the two essential ingredients in several products including dark chocolate bars, creamy truffles and beverages like hot cocoa. Cocoa is a culinary staple in so many desserts, treats, snacks, drinks, and even in some meal recipes.
What has changed recently with cocoa prices?
Over the course of 12 months, from January 2023 to January 2024, farmers, consumers, and corporations have inadvertently faced an exponential increase in the price of cocoa beans. Historically speaking, in 2022, according to the Nasdaq, cocoa prices averaged nominally around $2.39 per kilogram. Following this, prices have increased to $7.63 per kilogram in recent measures. In 2023, one metric ton of cocoa beans cost around $3,300. In April 2024, prices hit an all time high of $11,400. In August 2024, one metric ton of cocoa beans cost around $8,400. With recent increases in prices and fluctuations in the cocoa industry many farmers found themselves struggling to make ends meet and profit off their crops, while continuing their passion and livelihood for growing cacao.
As of September 2024, cocoa futures were estimated to amount to $7816.4 per metric ton. Global supply is currently constrained due to adverse weather conditions and disease outbreaks affecting production in key cocoa-growing regions, especially the Ivory Coast and Ghana. This has led the market into a four-year deficit. A four-year deficit in the cocoa market means that the demand for cocoa has consistently exceeded the available supply during this period. This imbalance can lead to higher prices, as buyers compete for limited quantities of cocoa. The prolonged supply issue signals that farmers are struggling to produce enough cocoa, impacting the overall market dynamics. The current cocoa futures price indicates a strained market, driven by ongoing production challenges. This leads to a situation where demand surpasses supply and contributes to rising costs. (Click here to see the most current cocoa futures)
Source: Trading Economics
Why is the cocoa price fluctuating and how can we fix this?
Around 70 percent of the world’s cocoa bean supply derives from the Ivory Coast, Ghana, Nigeria, and Cameroon. Recently, deforestation, unfavorable weather conditions, and disease have devastated cocoa bean yield. The International Cocoa Organization (ICO) predicted production will slow by 374,000 metric tons in the 2023-2024 season. While this prediction held true in the decrease of production which offset expected supply, cocoa futures ultimately inflated. For the 2024-2025 cocoa season, they are expecting increases in supply, due to resolution of adverse weather conditions, and more favorable environmental conditions.
The rise in cocoa prices are credited to an array of variables including:
- Consumption Patterns – Consumers expect a steady rate of their product. When many cocoa farmers were faced with adverse farming and weather conditions, prices drove up. In economics, when prices increase, consumption patterns skew and decrease.
- Long Term Systemic Issues – In the past two years, cocoa farmers have faced systemic challenges including deforestation, climate change, and rising input costs. Unpredictable weather and crop diseases like cocoa swollen shoot virus have further reduced yields. These interconnected issues highlight the urgent need for sustainable practices and better support for farming communities to ensure their resilience.
- Social Implications Surrounding the Agricultural Practices of the Cocoa Industry – The cocoa industry faces serious social issues, including child labor, economic inequality, and community displacement. Farmers earn a small share of cocoa prices, while women often lack access to resources. Unsustainable practices harm the environment and local health. Addressing these challenges demands fair trade initiatives and support for sustainable agriculture.
Cocoa supply vs. demand
One main reason for the sudden spike in cocoa prices is the decrease in supply, faced with an increase in demand. Production conditions, future expectations of output, and input costs all have a direct impact on the price of cocoa. Production conditions of cocoa beans are unfavorable due to increasing global temperatures and other climate impacts. While chocolate consumption and its use in many products is steadily increasing, cocoa is harder to farm and produce, making the product more scarce and driving the prices up.
In terms of future expectations, initially many larger corporations refused to buy cocoa at this inflated price. This left them with lack of supply for their products. After realizing they were left with no cocoa and prices remained high, many chocolate companies purchased grand amounts of cocoa, which further increased the price increases.
With the lack of reinvestment into the cocoa agricultural industry, many farmers were left at a disadvantage as they were struggling to yield more cocoa output. With the producer to consumer pay deficit, farmers are struggling to continue farming cocoa with reinvestment into their livelihood and agricultural practices. Many farmers found themselves in deficits pertaining to necessities. Farmers are struggling to replenish their crops and to produce expected yield. In addition to reinvestment into their businesses, farmers are struggling to make ends meet in terms of affording food, clothing, and a plethora of basic necessities.
Climate impact on cocoa farming
Climate change experienced by increased temperatures, drought, and heavy rainfall, pests, and poor soil health are all contributing to the decline in cocoa farming and productivity.
One example of the climate impact is black pod rot, which has been found in every commercial cacao producing region. It is causing significant production losses on cacao farms. The disease is caused by several species of fungal-like organisms. Under humid conditions, these organisms spread rapidly on cacao pods. These organisms are known to survive higher temperatures. And as climate change forces higher temperatures, black pod rot will become a bigger issue for cacao farmers. The changing climate will continue to create global challenges in the production of cacao and prevent farmers from sustaining the levels of production needed by larger companies.
Systemic issues and social implications surrounding the cocoa industry
For centuries, cocoa farmers have been faced with adversity in all realms of agro-economics. They have suffered from low pay accompanied with hard work and exploitation from larger chocolate companies. These conditions cause farmers to struggle. They do not have the funds to reinvest in their crops while maintaining their personal finances. The agro-economic environment surrounding the cocoa industry is unfavorable towards farmers.
Cocoa farmers yield a high value good, but, as their good is consumed, they continue to receive a fraction of the actual value of their product. Why does this happen?
When struck with compromised crops due to unavoidable weather conditions, farmers are struggling to continue output at their expected production rate. On average, according to the Fairtrade Foundation, cocoa farmers earn only 6% of the final value of a bar of chocolate.
If a chocolate bar costs around 6 dollars, these farmers are only making 36 cents. That is only 6% of the cost of the chocolate bar. This is not enough money for a farmer to live off off and then to also reinvest into their farm productivity. According to Barry Callebout,
“As a result of low yields due to poor farming practices, aging trees, and limited access to inputs…The average cocoa farmers income is significantly below the World Bank’s extreme poverty line of $1.90 a day.”
Many larger chocolate corporations disregard sustainable practices and necessary measures when dealing with farmers, ultimately setting them up for failure. These large companies fail to reinvest portions of their profit to maintain the cocoa yield to meet their consumer demand. Ultimately, they are not investing in their farmers’ futures, who are working tirelessly to make ends meet.
Some large corporation strategies include standardizing their farmers’ practices and creating a financial dependency with farmers. Corporations have created training that focuses on increased production, including the use of fertilizers and pesticides. Participating cocoa farmers are required to participate in this training, and buy plants, fertilizers and pesticides through the corporation’s suppliers, and then sell their beans to the corporation. Farmers are forced to bypass local cacao traders that have traditionally purchased their beans. Credit is also provided through microfinance loans funded by the large corporations using the farmers’ land as collateral. Ultimately, these farmers are financially dependent on these large corporations and cannot abandon cocoa production to grow other crops or pursue a different source of income.
How can local chocolate makers and chocolate consumers redirect the farmer consumer relationship?
Many smaller direct trade chocolate companies are collaborating and working to make cocoa a sustainable source of income for farmers globally. Uncommon Cacao, for example, is a specialty cacao trader that sources from thousands of smallholder producers across more than fifteen countries and supplies cacao to hundreds of chocolate makers globally. The company has pioneered a new cacao economy that pays farmers more and is grounded in real partnerships that deliver improved stability and success for all’. Companies like Uncommon Cacao ethically source their cocoa direct from farmers and farmer groups of different cocoa origins. These direct trade agreements compensate farmers at a wage that eliminates unethical labor practices and helps farmers escape a continuous cycle of poverty.
Bean to Bar chocolate-making companies such as Moka Origins crafts their chocolate from cacao beans to chocolate bars in order to bring out delicious flavors from around the world. Moka Origins plant a cocoa tree for every chocolate bar that is purchased. This practice promotes environmental sustainability and increases biodiversity in the regions where these trees are being planted. They also provide the farmers that they support with workshops on sustainable agriculture and advancements in the agricultural industry that can help their farms. As new farmers emerge from this support, Moka Origins purchases their product at premium prices, and promises these farmers a wage that will allow them a real living and opportunity to expand their cacao farming knowledge.
There are several other bean to bar chocolate companies buying direct from farmers in country at a premium price such as Goodnow Farms in Massachusetts, Fruition Chocolate in New York, and Dandelion Chocolate in California, to name a few. These companies are all helping to redirect the farmer consumer relationship.
How can you, the chocolate consumer, have an impact on helping sustain and improve the cocoa industry?
Here are three simple things that anyone who consumes chocolate can do to help benefit cocoa farmers and the cocoa economy across the globe:
- Support small scale farmers and businesses. By doing this, it has a positive impact on the well being of all farmers and a positive environmental impact. Investing in these companies offers opportunities for new jobs, higher pay, and promotes symbiotic relationships between consumers and producers. For example, instead of buying large scale produce, look for small farms, certified organic products, and companies that sustainably manage their business affairs. Transition buying products from larger companies to these smaller companies.
- Make Investments in smaller companies that ethically source their product and ensure a higher pay grade than what is offered by larger corporations. Reinvestment into the agricultural communities is of the utmost importance to ensure high quality products and care for our valued farmers.
- Lastly, spread the word to your network of friends, family and coworkers! Tell them about smaller businesses you come across and have transitioned to, and explain why you made the changes you did. This promotes and sustains small businesses globally.
Connecting to the cocoa economy
As a young middle schooler, I traveled to the Dominican Republic with my mom, Aunt, and some of my mother’s friends and coworkers. The trip was centered around a visit to a 100-year old organic cacao farm that was passed down through a local family. We explored the cacao farm on donkey, cut open cacao pods and tasted them right from the tree before they were fermented and dried, and experienced that connection to the heart of the cocoa economy. These farmers were working with the Rainforest Alliance to help them improve their quality of their cacao trees. The Alliance also acted as the middle man for cacao sales, buying from several local farmers and then selling them in bulk outside the country. We also visited women-owned chocolate-making companies that were purchasing cocoa beans from local farms and creating and selling their own chocolate products in the Dominican Republic.
Several years later, now in 2024, I found myself traveling throughout rural Mexico and once again experiencing the local cocoa economy from cocoa bean to chocolate bar. It was a very similar experience to the Dominican Republic trip. However, now, as a college economics and sustainability student, I was looking at the farmer and his or her impact in a very different and more global way.
As an economics and sustainability student, what did these real-life farm experiences teach me about economics?
Although we examine the cocoa economy on a macro level and look at it as one big economy, we can’t forget about the small farmer whose livelihood and family depend on the health of a plant – the health of a cacao tree and the quality of the cocoa pods that that tree is producing. When we consume chocolate, or any particular food, let’s not forget that its larger economy starts with the Earth’s soil, one plant, and one farmer. And how we treat and support that farmer can have a significant impact on the global economy.
