“Cocoa Industry Dynamics: Supply Challenges, Sustainability Efforts, and Consumer Demand for Ethical Chocolate”
Cocoa buyers and processors heavily rely on Ghana and Ivory Coast for their cocoa bean supply, as evidenced by their swift agreement to the recent price increase. Cocoa prices have seen significant fluctuations in recent years due to factors such as climate change, overproduction, and challenges related to child labor and deforestation. If supply issues are not addressed, confectionery companies like Mars, Nestlé, Mondelez, and Hershey may face declines in earnings, leading consumers to potentially deal with higher retail prices.
Manufacturers have a strong incentive to offer slightly higher prices for cocoa beans, given that demand continues to surge, particularly for premium chocolate varieties, dark chocolate, and sugar-free options. According to a TechSci report, the U.S. chocolate market, the largest globally, was valued at approximately $22 billion in 2016 and is expected to surpass $30 billion by 2021.
While other countries, such as Indonesia, Nigeria, Cameroon, Brazil, and Ecuador, also produce cocoa, the majority of farms are small, labor-intensive operations where cocoa beans serve as the sole source of income. This context highlights the significance of negotiating a minimum price in the recent agreement. Without such a deal, chocolate growers, traders, manufacturers, and consumers would likely experience pressure from dwindling supplies and, therefore, even steeper prices—an undesirable outcome for everyone in the cocoa supply chain. Although Ghana and Ivory Coast did not implement a sales suspension, the mere threat of such action was enough to prompt negotiations.
In response to rising consumer demand and the challenges of maintaining cocoa yields, chocolate producers are striving to enhance sustainability. This commitment extends beyond environmental concerns to include the economic welfare of workers. For instance, Hershey announced a $500 million investment in West African cocoa sustainability last April. Other companies, including Nestlé, Lindt, Mars, Mondelez, Cargill, and Barry Callebaut, have also increased their sustainability investments and commitments.
However, companies do not always follow through on their sustainability promises, and issues like child labor and inadequate farmer income persist. A 2018 Cocoa Barometer report revealed that around 2.1 million children work on cocoa farms in Ivory Coast and Ghana, and commitments made by businesses and governments to reduce child labor by 70% by 2020 are unlikely to be met. Furthermore, the report indicated that the average cocoa farmer earns only about one-third of what is considered a living wage, and approximately 90% of West Africa’s original forests have been destroyed.
Looking ahead, maintaining awareness of the situation and the ongoing high demand for chocolate will likely keep the spotlight on the cocoa industry. For those involved in fair trade, paying higher prices, and upholding sustainability commitments, the industry stands to benefit from increased transparency and credibility—two values that consumers increasingly seek and align their purchasing decisions with.
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