Why Your Chocolate Fix Is About to Get More Expensive

A failed crop, followed by a wave of financial speculation, put cocoa prices on a roller coaster this year, rattling an industry reliant on inexpensive crops and labor.

This is not how things normally go in the cocoa market. For much of the past decade, the price of cocoa in one key global benchmark hovered around $2,500 per metric ton. Last year, after poor harvests in West Africa, the price began to creep up — rising to $4,200 a ton by December, a threshold that hadn’t been crossed since the 1970s.

Then the financial speculators began to pile in — betting prices would rise further. They pushed the price above $6,000 a ton in February, $9,000 a ton in March and $11,000 a ton in mid-April. Since then, the price has swung wildly, falling nearly 30 percent in just two weeks before bouncing up again. By Thursday, the price was $8,699 a ton.

Large food companies have been raising prices and warning that they’ll have to continue to do so if cocoa doesn’t stabilize. Companies that use more pure cocoa — rather than the palm oil and other fillers that go into many candy bars — will be hit hardest, though some premium chocolate makers note that they’ve always paid much higher prices in order to compensate farmers fairly.

The situation doesn’t look as if it’s going to settle down soon. Here’s what you need to know.

A combination of low rainfall, plant disease and aging trees led to a disappointing crop in Ivory Coast and Ghana in 2023. The two countries produce about two-thirds of the world’s cocoa, so the shortage hit the global market hard. It continues: The International Cocoa Organization recently forecast that global production will trail demand by 374,000 tons this season, which ends in September, after a 74,000-ton shortfall last year.

There’s no quick fix for this. Cocoa trees take years to produce fruit, giving farmers little incentive to plant more since they don’t know what the price of the crop will be when they bear fruit. Some may prefer to use more of their land for growing rubber or mining gold.

But while the production shortfall underpinned the initial price gains, speculation from investors like hedge funds took things to another level.

“Yes, there’s fundamentals that trigger the move, but then these financial considerations add to it and compound to the situation.” said Judy Ganes, a commodities consultant. “It’s money driven.”

Like any commodity, cocoa has many different prices.

In Ghana and Ivory Coast, the government sets a seasonal rate that cocoa farmers are paid, in an effort to protect them from volatility in global prices. After market prices spiked in April, the Ivory Coast’s agriculture ministry agreed to raise that rate for the rest of the season — but it is still far less than the increase in global commodity markets.

In other countries, farmers are paid market rates.

But big buyers, like Hershey and Mondelez, and commodity traders buy and sell cocoa on global exchanges, where they trade physical beans as well as futures contracts that can require them to take a delivery of beans at a future date.

It’s in the global exchanges that prices have become disconnected from the reality on the farms.

The global benchmark for cocoa is a futures contract traded on the Intercontinental Exchange — and a buyer of that contract is agreeing to a price for a metric ton of cocoa beans to be delivered to one of several ports in the Eastern United States.

One big factor behind the price spike this year is that those futures contracts are settled with physical delivery of the cocoa — which means traders who are selling the contracts need to keep large reserves of cocoa beans on hand. That can result in an upward spiral, as traders are forced to buy more cocoa in order to replenish their inventories.

The volume of trading can also affect how the price changes.

In January, the number of active cocoa contracts jumped 30 percent from the year before, data from the Commodities Futures Trading Commission show. But that trading volume fell sharply starting in April — as prices peaked — and the smaller number of trades resulted in big price swings in the past two weeks.

Though prices have come down from their highest point, they’re likely to stay elevated for some time, said Paul Joules, an analyst at Rabobank, “because of the systemic issues that are going to take a while to resolve.”

Carla Martin, a Harvard professor who studies the cocoa industry, said the broader market might look more efficient if farmers had more price-setting power based on their supply.

“There’s actually a ton of money in cocoa, it’s just getting captured in very specific nodes of the supply chain,” Ms. Martin said. “The market itself does not actually solve these kinds of problems, the problems get solved by people.”

Chocolate prices are mostly rising. When Hershey and Mondelez, which owns brands like Cadbury and Toblerone, reported earnings recently, the price swings were a big topic of conversation.

Mondelez said it raised its prices about 6 percent in the first three months of the year, and Hershey about 5 percent, and both said they would be willing to push prices up more if the cost of cocoa stayed high. Both companies said their profits had increased by double-digit percentages over the previous year as consumers continued buying their products despite rising prices.

Luca Zaramella, the chief financial officer of Mondelez, told analysts on April 30 that the market was “overreacting” and that it would very likely correct itself in the latter half of the year.

Still, he said, “it’s absolutely critical for us to get ready for potentially cocoa staying at these levels.” Mondelez could protect its profits, Mr. Zaramella said, by trying to secure large orders of cocoa during market downswings or reducing costs for other inputs, like ingredients.

Some “bean to bar” chocolate makers, which have always paid a premium for the cocoa they get from smaller farmers, say they’re having a different experience.

“The premium cocoa price never changed,” said Dan Maloney, who runs Sol Cacao, a chocolate business in the Bronx, with his two brothers. “It’s almost like the bulk price caught up with the premium price, but we were always paying premium.”

Mr. Maloney said he was already paying $9,000 to $12,000 for a ton of premium cocoa, which he obtains from farmers around the world, particularly in Latin America and Africa. Sol Cacao charges $8 for a 1.86-ounce bar, while a four-ounce Hershey bar is about $2.

Mr. Maloney said he charged those prices to ensure the quality of the product and ethical treatment of farmers in the industry, which has a history of exploiting children and enslaved people for labor.

“They market chocolate as candy,” Mr. Maloney said of large manufacturers. “We market it more as a luxury, something to savor, like a bottle of wine.”

Some cocoa farmers see buyers like Mr. Maloney as allies who protect them from the whims of the financial markets.

Gustavo Mindineros, a cocoa farmer who leads a co-op of producers in Tumaco, Colombia, said farmers tended to favor smaller buyers when production was low because they bought fewer beans at a higher price.

“The large company guarantees volume, but they don’t recognize quality,” Mr. Mindineros said. “Smaller buyers do recognize quality, and they pay a premium for it.”

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