2015 has not been a good year for Africa's cocoa belt. Dry weather and a lack of pesticides in Ghana, and wet weather and a hike in export taxes for grinders in Ivory Coast are likely to result in a huge shortfall of beans and grindings available from the world's top cocoa producers. Given that cocoa has been a crucial element in the impressive growth of both West African economies in previous years, what does the future hold for the sector and the fate of chocolate for the rest of the world?
It's a difficult question to answer in an industry that runs on a lot of guesswork and uncertainty, particularly when it comes to knowing how much cocoa an economy can actually expect to produce in the short-term. In Ghana, the government pledges its cocoa crops for sale ahead of harvest. This means that the country "forward sells" what it expects to produce, based on its estimates of how many beans can be squeezed out a harvest in any given year. The major problem this year is that the regulatory body Cocobod is likely to have overestimated the amount of cocoa that can be produced, revising predictions down by a quarter from one million tonnes to 750,000 tonnes (although this figure itself is disputed among international cocoa bodies). The knock-on effects of a potential cocoa shortage can be seen at every stage of processing, from bean to bar.
Firstly, uncertainty pushes up the price of cocoa on international markets as traders and merchants are left guessing as to how many beans there will be to go around. In April, the price of cocoa reached a seven month high of £2,090 per tonne. In 2011, cocoa prices reached a 33 year high after disappointing harvests in Ivory Coast, the world's largest producer of cocoa. In the ensuing 'scramble for cocoa' that is likely to follow in 2015, as chocolate companies attempt to cover their positions, prices are likely to edge up even further.
Expensive cocoa also puts buyers off. Offers and bids for Ghanaian beans from brokers are likely to wither on the vine, given that the margins for profit in chocolate making are already wafer thin. Added to this is the issue of Europe's sluggish growth, which impacts upon chocolate-buying patterns. If the price of cocoa increases further the only solution for a lot of producers will be to either raise the price of confectionary (as Hershey's, Nestlé and Lindt & Sprüngli has done), replace high grade cocoa ingredients with vegetable oil substitutes or to simply make chocolate bars smaller.
Times of crisis lead to crisis talks. Given that Ghana and Ivory Coast together produce about 60% of the world's cocoa, localised issues such as adverse weather, crop disease and delivery delays soon balloon in to global supply-chain dilemmas. In 2014, the World Cocoa Foundation held a series of meetings to talk about the sustainability of cocoa farming in Ghana and Ivory Coast. The outcome was the CocoaAction plan, a strategy that will attempt to boost productivity and optimise production in West Africa in a number of ways. Companies committed to the plan, including Mars Incorporated and Ferrero, have promised more fertilizer, training and 'empowerment' to cocoa growing communities. If investment is successful, it will have an added benefit of keeping farmers in cocoa rather than forcing them to switch to cash crops like rubber and palm oil.
But even with all these measures, cocoa production in West Africa is under threat from greater competition elsewhere. Some estimates suggest that the demand for cocoa from Asia may increase by 20% this year as disposable incomes increase and economies flourish in India and China. Indonesia remains the main cocoa supplier for the region, increasing its production capacity to 500,000 tonnes this year up from 150,000 in 2010. There are also signs of increasing investment in the sector, signaling a potential shift of industry to Asia. In 2013, Hershey's acquired a majority share in Chinese confectionary company Shanghai Golden Monkey Food Co. In 2014, commodity house Cargill Inc. announced the building of a $100 million cocoa facility in Gresik, Indonesia. There are hopes that industry will be scaled up in coffee and rice-producing Vietnam, although achieving scale will be an issue.
Can African cocoa, which is still 90% dominated by small holdings and beset with numerous production issues, hope to compete in the long term? Aside from dealing with rivals in Asia, bodies such as Cocobod in Ghana have also begun to lose trust among traders because of the lack of transparency around its purchasing data and erratic logistics. Cocobod has said that it is working to improve its communication and marketing strategies. But regaining credibility will require a lot more effort to develop reliability within the sector itself, not just a sugar coating.