The great global chocolate crisis

Reseached by: Nirmal Bhansali

You say cocoa, I say cacao…

First, the backstory: Cacao is the Spanish word for cacahuatl—the beans consumed by the Aztecs. Since the English couldn’t spell, we now know them as cocoa beans. The ancient Mayans ground the beans and put them in a drink—which was bitter and often mixed with chilis. Then the Aztecs conquered them—and developed true appreciation for the good stuff:

The Mayans and the Aztecs believed (and perhaps some people still do) that chocolate was a gift from the gods. The Aztecs in particular revered the drink— they gave it to victorious warriors after battle, would use it during religious rituals, and even used cacao beans as currency. To them, cacao beans were more valuable than gold. 

Spanish conquistador Hernán Cortés took cacao back to Europe—where it was first used as a medicine due to its bitter taste. Then someone added sugar—and changed the course of culinary history. Behold the modern chocolate! 

Cool fact to know: The trees are called Theobroma cacao, which means “food of the gods”. 

The mother lode: Theobroma trees grow best in a narrow band—approximately 20 degrees north and south of the Equator. They need temperatures between 65-90°F (18°C-32°C ) —and enough rainfall. Just four countries —Ivory Coast, Ghana, Cameroon and Nigeria—produce nearly 75% of the world’s cocoa. At #1 is Ivory Coast—which produces 2 million tons a year on average. The total global consumption of cocoa: 5 million tons. So yeah, Ivory Coast is the chocolate king.

A colonial chocolate supply line 

The production of chocolate is deeply imperialist in structure—the poor country supplies the raw material (as in, beans), companies from rich countries process, manufacture and distribute the end product (i.e chocolate). No prizes for guessing who makes the most money:

Ghana supplies about one-fifth of all cocoa beans, for which it earns about $2 billion a year, less than one-fiftieth of the value of the chocolate that is manufactured, branded and sold… “Chocolate is a $100bn industry and we who produce 65%  of the raw material make less than $6 billion from the sweat and toil of our farmers,” [Nana Akufo-Addo, Ghana’s president] says, referring to the combined sales of Ghana and Ivory Coast. 

Even more unsurprisingly, the cocoa farmers are so dirt-poor that most have never tasted chocolate.

The secret of ‘affordable chocolate’: is that it relies on shockingly low prices paid to farmers—who grow cocoa in tiny farms. In Ghana and Ivory Coast, they earn about $1.42 and $1.23 per person per day. That's what they get for producing the main ingredient in a $60 billion global industry. The difference between the amount paid to farmers and the wholesalers is 250% in Ghana.

Throw in child slavery: The industry has always relied on child labour—and recent laws to curb the practice have failed: 

[I]n 2015, the US labour department found that the number of children working on cocoa farms—some carrying out dangerous tasks such as spraying pesticide, lugging heavy sacks or wielding machetes—had actually gone up to 2.1m. The industry has since signed up to a less ambitious target of reducing child labour by 70% by next year. Most observers think it will fail.

The great chocolate shortage is here!

A shockingly exploitative supply chain. A high-demand commodity. What can go wrong? Answer: Weather and human nature. 

A supply-side rebellion: Cocoa farming has become so unsustainable that West Africans no longer want to do it: 

Cocoa farmers are running away from the cocoa sector and are moving to other areas. The youth are not motivated to go into cocoa farming because when they look at their parents, how they’ve suffered for 40 years, 50 years being a cocoa farmer, they are not interested.

As a result, they are no longer tending to their cocoa crops—or investing in them:

The last wave of tree planting in West Africa took place in the early 2000s, particularly around the northwest of Ivory Coast. Those trees are nearly 25 years old, well past their prime. Husbandry has decayed, too, with little use of fertilizer and pesticide. Old cocoa trees mean two problems: lower yields, and plants particularly vulnerable to bad weather and disease.

In other words, the production of cocoa has been falling for years. Things are so bad that even Victoria Mars seems to have finally woken up to the downside of her family business: “If our farmers are not able to thrive, if they are not able to make a decent living, if they are not able to educate their children, then they are not going to stay farmers.”

Bad weather problems: The shortfall became especially pronounced this year because of good old El Niño. Last season, it brought extremely high temperatures and the most rainfall in 20 years to West Africa. This year, the farmers are facing drought. Now throw in black pod disease that has devastated crops. Ghana and Ivory Coast are expected to see a 30% decline in production.

The fallout: A growing chasm between demand and supply. There will likely be a deficit of 300,000-to-500,000 tons in the global market—which would be “the largest shortfall in at least 65 years — and probably ever.” Also unprecedented: The cocoa market will suffer a large deficit for the third consecutive crop season. 

The growing divide: has now become visible—even in grocery aisles in the US—where the price tag on those Hershey’s and Mars bars have been ticking upwards. The global price of chocolate is skyrocketing—jumping to $5,500 per metric ton from  $2,500 last year. The price in 2000: $650. As Morning Brew recently noted:

The price chart for cocoa is something your algebra teacher would use to describe the term “exponential.” On Friday, benchmark cocoa futures surged to a record $8,018 per metric ton, a 25% increase last week alone and 215% higher than last year.

And as consumers dial back their chocolate budget in the midst of inflation, even chocolate companies are taking a hit:

Hershey’s year-on-year profits fell by 11.5% during the fourth quarter. The company recently announced that it would cut 5% of its workforce. Barry Callebaut, the world’s biggest chocolate-maker, said that it would lay off 2,500 people, 18% of its workforce.

But, but, but: None of this has translated to a higher income for cocoa farmers—whose sale price is set by the government. As Javier Blas observes in his Bloomberg column:

For all of that time, farmers have been cash cows for all interests except their own: governments have taxed the sector heavily; traders and the confectionary industry have had more than enough beans to keep chocolate prices affordable, expanding sales to a growing class of sweet lovers; and ultimately the consumers, who saw chocolate transforming from a luxury item into an everyday treat.

The bottomline: A former commodities broker has this advice for farmers—keep doing what you’re doing: “If they abandon cocoa, prices would go through the roof. Grow more food, produce less cocoa and push up the price.”  And as climate change kicks in, the days of “affordable” chocolate could be behind us. Maybe that’s not such a bad thing after all—for the farmers and our waistlines.

Reading list

Javier Blas in Bloomberg News offers a measured take on soaring prices. Financial Times (splainer gift link) is best in explaining how the global supply line works—and efforts to make it less, well, colonial. For the effect on chocolate prices, read CNN and Washington Post. Brown Political Review is best on the imperialist structure of chocolate production—while Washington Post reports on the use of child labour. The Conversation argues the African governments should take advantage of the crisis. New York Times explains how chocolate is made. If you secretly think that Indian cocoa will save us, this 2018 Scroll piece explains why it will run out as well. And if you’re bored of reading on screens, watch John Oliver’s excellent breakdown of the global chocolate industry.