At different points in history, the price of chocolate varies but consumers are not even aware of it. With the hand of the heart, most of us really won't notice if the price of our favorite chocolate goes up by a few shekels, because the urge for chocolate is a passion that must be satisfied – and beautiful one hour earlier. Still, perhaps as a regular delivery sender of gift chocolate, you will be interested to know how the supply and demand model of the sweet and beloved treat works - and why its price changes from time to time.
Limited cocoa supply - meaning higher chocolate prices
The import of chocolate tends to be the most influential factor in the volatility of chocolate prices. Many goods are used to make chocolate with the main ingredient being, of course, cocoa. Other ingredients such as sugar, dairy products, nuts, corn sweeteners, and energy are also necessary for the production of chocolate products. These commodity prices are often driven by the commodity market, which sets the price based on supply and demand levels and can cause fluctuations in commodity prices.
In general – the factor that most influences the price of chocolate is the cost of cocoa. Chocolate makers use two cocoa ingredients to make chocolate and they are cocoa powder and cocoa butter. Cocoa butter is the more desirable of the two because it creates the richest and finest chocolates – but it is also the most difficult and expensive to produce.
Africa (mainly Côte d'Ivoire and Ghana) is the largest global producer of cocoa, supplying close to 70% of the world's cocoa. Supply fluctuations are the result of a number of factors, ranging from political and civil unrest to labor issues to the effects of weather, diseases and pests on crops. For that matter - long periods of weather impair the process of growing cocoa beans, as a result of which a shortage is created.
Cocoa prices are higher because farmers have to pay more
Other issues such as reducing the labor force can also affect the supply of cocoa to the market. For example, Tulane University published a report in 2015 revealing that over 2 million children work in the cocoa industry. As a result of the exposure, movements arose that opposed child labor because, in addition to the meager wages they earn, it is also illegal and immoral. Due to the reduction in the cheap labor force and the fact that farmers were forced to pay higher wages for adult workers, cocoa prices increased.
Demand for chocolate continues to grow
GLOBAL DEMAND FOR CHOCOLATE HAS RISEN IN DOUBLE DIGITS SINCE THE 2008 RECESSION AND IS EXPECTED TO CONTINUE TO GROW, WITH A COMPOUND ANNUAL GROWTH RATE (CAGR) OF 3% BY 2021. MUCH OF THIS INCREASE IN DEMAND IS RELATED TO THE GROWING DEMAND OF DARK CHOCOLATE BY CONSUMERS AROUND THE WORLD – ESPECIALLY IN LIGHT OF ITS POTENTIAL HEALTH BENEFITS. THE DEMAND FOR DARK CHOCOLATE HAS A DOUBLE EFFECT: IT INCREASES THE DEMAND FOR CHOCOLATE PRODUCTS AND COCOA SINCE DARK CHOCOLATE REQUIRES MORE COCOA BEANS PER OUNCE THAN MILK CHOCOLATE. ALSO, WHILE NORTH AMERICA AND WESTERN EUROPE HAVE ALWAYS BEEN LARGE CONSUMERS OF CHOCOLATE PRODUCTS, OTHER REGIONS, SUCH AS THE ASIA-PACIFIC REGION, HAVE ALSO BEEN ADDED TO DEMAND AS A RESULT OF GROWING INTEREST IN DARK CHOCOLATE.
Bottom Line
The volatility that exists in cocoa prices is not a new phenomenon because commodity prices are often liquid. However, the current increase in demand along with any disruption or shortage in the supply of cocoa can dramatically affect the price of chocolate. Large chocolate makers will try to hedge the price fluctuations associated with commodity prices through contracts that will determine a price they are willing to pay in the future - but in the long run, a continuous increase in commodity prices will result in higher chocolate prices.