Cocoa bean prices have climbed to record nominal levels over the past six months, more than doubling since August 2023 (Figure 1). This price spike has largely been driven by weather-related diseases that have reduced cocoa production in key West African countries accounting for almost three quarters of world supplies.

Cocoa processors are now seeking alternative sources in Asia and Central and South America to fulfill contracts, contributing to a parallel rise in futures prices. On March 26, prices on the May 2024 cocoa futures contract on the ICE exchange were over $9,600 per metric ton (MT).

Producers and consumers are both feeling the impacts. While many West African smallholder farmers have seen falling revenues because of production losses, consumers in wealthier countries have seen retail prices of chocolates and other associated products rise. The question now is, how long will prices remain high? In this post, we examine the current agitated state of the global cocoa market and prospects going forward.

Figure 1

Cocoa market structure

Cocoa is grown in many tropical and subtropical zones around the world. Native to the Amazon basin, most cocoa production comes from West Africa, where the crop was introduced commercially in the late 19th century. Throughout most of the 20th century, Ghana was the world's largest cocoa producer, but by the late 1970s, it was surpassed by neighboring Côte d'Ivoire, which produced over 2.2 million MT in 2022 (Figure 2). After those two, Nigeria and Cameroon are Africa’s next-largest cocoa producers.

About 30% of global cocoa production originates outside of Africa, mostly in Asia (Indonesia), Oceania (Papua New Guinea), Central America (Mexico) and South America (Ecuador and Brazil).

Figure 2

Cocoa is an important export crop for West African producing countries (Figure 3). In 2023, cocoa beans and products accounted for almost 70% of Côte d'Ivoire's total agricultural export earnings, almost 60% of Ghana's agricultural export earnings, and almost 80% of Cameroon's agricultural export earnings. Over half of Nigeria's agricultural exports were cocoa related, mostly in the form of cocoa beans.

Figure 3

A recent analysis by the IMARC Group estimates the size of the global cocoa processing market at $15.3 billion in 2022. Much of the growth in cocoa processing is due to the rising use of chocolate in the production of ice creams, chocolate milk, biscuits (cookies), and cosmetics and personal care products. Cocoa consumption is concentrated in the affluent high-income countries of Europe, North and South America and Oceania (Figure 4). In recent years, consumers have become increasingly vocal in demanding that cocoa producers adopt more sustainable farming practices, including addressing child labor concerns and concerns over deforestation.

Figure 4

The Cocoa & Forests Initiative was signed in 2017 between the world’s major cocoa companies, the governments of Ghana and Côte d'Ivoire, and IDH - the Sustainable Trade Initiative, to promote forest protection, restoration and cocoa agroforestry, progress in national forest monitoring, traceability systems, with substantial investments at the farm level. Despite some progress, low productivity from aging cocoa trees grown as a monocrop has led scores of impoverished smallholder cocoa farmers to make illegal incursions into standing forests, where the soil is more fertile, contributing to ongoing deforestation.

Impact of weather on cocoa production

According to International Cocoa Organization (ICCO), cocoa production over the past three years has been below the record levels recorded in 2020/21 (Figure 5). Cocoa production in Côte d'Ivoire and Ghana suffered large losses due to excessive rainfall and black pod disease, caused by a fungus that attacks pods and trees. The ICCO estimates that Côte d'Ivoire’s cocoa production in 2023/24 is 20% less than 2022/23 levels while Ghana's production is estimated down 11%.

Figure 5

Cumulative export data through February 2024 show that Côte d'Ivoire's cocoa bean exports for 2023/24 are down more than 25% from 2022/23 levels at the same point in time (Figure 6). (The marketing year for cocoa runs from October to September.) Similar data for Ghana are not yet available, but production estimates suggest that its exports will likely fall as well.

Figure 6

Lower global production and strong consumption has also led to a drawdown in global cocoa ending stocks (Figure 7). Based on ICCO estimates, ending stocks for 2023/24 are projected to be almost one third lower than ending stocks in 2020/21—also contributing to the sharp rise in prices and price volatility.

Figure 7

How long will high prices last?

Prices are expected to remain high through much of 2024. Assuming a return to normal weather patterns and yields, prices should begin to moderate with the new crop harvest in the last quarter of 2024. The forward curve for cocoa futures contracts shows declining prices over the next 24 months, suggesting that the market anticipates a slow recovery as production and stocks rise (Figure 8). One concern is the extent to which harvest losses and crop diseases may have affected tree numbers. A significant loss of cocoa trees would prolong the shortfall and turn into a structural supply issue, keeping costs high. In addition, higher production costs due to such sustainability concerns could slow supply adjustments.

Figure 8

Conclusions

We anticipate the current cocoa price shock triggered by the supply shortfall in West African countries will continue for much of 2024. While the impact of high prices of cocoa beans will be felt mostly by consumers in high-income countries, the small holding producers in West African countries may not be able to reap the benefit of high prices due to reduced production.

Another concern is whether weather and fungal disease have damaged existing trees, potentially leading to a longer market disruption. In the meantime, cocoa processors will look for alternative sources such as those in Indonesia and the countries in South America. Though the futures market is hoping for a recovery in the beginning of 2025, traders will be keeping an eye on the coming crop cycle starting this October.

Joseph Glauber is a Senior Research Fellow with IFPRI's Markets, Trade, and Institutions (MTI) Unit; Abdullah Mamun is an MTI Senior Research Analyst. Opinions are the authors'.