An Overview of the Booming Global Cocoa Market
An Overview of the Cocoa Market
Around the world, cocoa is a significant product, serving as both a cash crop for countries that are farming it and a major import for those that are processing and consuming it. A global supply network for cocoa crosses continents and nations. Numerous stakeholders, including farmers, buyers, transportation companies, processors, chocolatiers, and distributors, are involved in the intricate production process.
At the farm level, cocoa cultivation is a sensitive operation since crops are vulnerable to a variety of factors, such as weather patterns, illnesses, and insects. Contrary to larger, industrialized agribusinesses, the bulk of cocoa is still produced by small, family-run farms, many of which struggle with antiquated farming methods and weak organizational capacity. Numerous international initiatives and funds are committed to promoting and enhancing the sustainability of cocoa farms due to consistent demand from customers around the world.
Cocoa products, such as cocoa liquor, cocoa butter, and cocoa powder, are commonly used in the production of confections, the flavouring of beverages, the garnishing of various foods, and the filling of pastries. As a flavouring and colouring agent, cocoa is also utilized in the nutraceuticals, healthcare, pharmaceutical, and cosmetic industries. Due to its flavour and perfume, cocoa is often used to make toiletries. One of the key factors driving the global chocolate market over the forecast period is the widespread and expanding use of cocoa in various sectors.
● The market for cocoa, which was estimated at $12,874.0 million during 2019, is anticipated to expand to $15,501.1 million until 2027, at a CAGR of 4.3%.
● According to the type of product, the cocoa liquor market is expected to develop at the quickest rate, with a CAGR of 4.4% throughout the projection period.
● According to the process, the Dutch procedure category had a value of $9,675.2 million in 2019 and held 75.1% of the global market share for cocoa.
● The Netherlands, which ranked first in Europe in terms of market size in 2019, is expected to increase at a CAGR of 4.5% to hit $1,636.5 million by 2027.
Factors affecting the cocoa Market
The cocoa market saw downward pressure on cocoa prices as rainfall in West Africa is expected to ameliorate the dry conditions brought on by the prevailing Harmattan winds and boost the potential yield of the cocoa crops in Ghana and the Ivory Coast.
Nigeria is the fifth-largest producer of cocoa beans in the world. Concern over the condition of certain West African cocoa harvests has helped to support cocoa prices. Due to reduced Russian supplies of potash as well as other fertilizers due to the conflict in Ukraine, cocoa producers are still struggling with a lack of pesticides and fertilizers.
The weak demand for cocoa around the world has a detrimental impact on prices. The National Confectioners Association announced on January 19 that Q4 North American cocoa system accordingly decreased -8.1% year over year to 107,130 MT. Moreover, according to January 19 2023 data from the European Cocoa Association, European Q4 cocoa grindings decreased 1.7% year over year to 359,577 MT. The Asia Cocoa Association announced on January 18 that the Asia Q4 cocoa system accordingly decreased -0.2% y/y reaching 230,806 MT.
The calculated real cost of standard cocoa beans is €7.10 per kilogram. This is the total of the farm gate value ($1.35/kg) and the external cultivation costs ($5.75/kg) for cocoa beans. This second one is also known as the genuine price gap.
The real price difference is more than 4 times more than what is paid at the farm gate for cocoa beans. This demonstrates that, concerning the market price, there are significant hidden costs at the farm level. 84% of the total externalized costs of farming are social expenses. Low rates of pesticide and fertilizer application as well as no water or energy use during cultivation contribute to the low environmental costs.
Economic side effects of cocoa production:
Cocoa prices are also being pressured by the Ivory Coast's plentiful supplies.
Income, land usage, and child labour are the three externalities that are most material during the cultivation of traditional cocoa in the Ivory Coast.
• Income (54%): Less than half of external costs associated with cocoa production are attributable to underpaying hired labourers and underpaying family workers;
• Land use (13%): The second-largest externality is produced by the creation of new plantations and farms, which results in deforestation and other forms of land degradation.
• Child labour (11%): Child labour is still prevalent in the Ivorian cocoa business, where they frequently do risky duties and go untrained.
Division of external expenses along the supply chain for cocoa:
92% of the researched external costs in the supply chain of cocoa occur during the cultivation stage. Transporting cocoa beans—both domestically as well as to Europe for processing—accounts for 3% of overall externalized costs, and turning them into chocolate accounts for 5% of external costs. The externalities per kg of processed cocoa beans are low because the worker productivity (FTE/kg processed cocoa beans) is high. Environmental expenditures make up about 91% of processing's external costs.
Processing occurs in West-Europe, wherein social conditions are often superior, hence social costs are comparatively modest.
Tighter cocoa supplies provide underlying support for NY cocoa. A 9-1/4-month low was reached on January 3 for ICE-monitored NY cocoa stocks held in U.S. ports, which have been trending lower over the previous four months. Additionally, the 112,880 MT 9-1/4 month low for cocoa inventories was kept in EU ports under the watch of ICE.
Following ICCO's announcement that global 2021/22 cocoa declined -8.0% y/y to 4.823 MMT due to bad weather and disease, the quarterly report released on December 1 was positive for cocoa prices. From the September estimate, ICCO decreased their estimate of worldwide cocoa production for 2021/22 by -419,000 MT. The worldwide cocoa deficit for 2021/22 was also increased by the ICCO from a September prediction of -230,000 MT to -306,000 MT. Global cocoa production reached a record 5.242 MMT in 2020–21, and there was a +209,000 MT surplus on the market.
Nigeria, the fourth-largest cocoa producer in the world, has proposed a strategy as part of an effort by producers in West Africa and South America to attempt and resolve a perceived disparity between farmers' wages and the money made by giant commodities merchants.
Ivory Coast and Ghana:
Nearly two-thirds of the world's output comes from Ivory Coast and Ghana, which have set a fixed "living income differential" of $400 per tonne on all cocoa agreements sold by either nation for the 2020–21 season.
Despite being the top two producers of cocoa in the world, the two nations have little impact on global prices.
Ivory Coast and Ghana had essentially agreed to a $400 per tonne high price above global prices for their cocoa, according to Sayina Riman, vice president of the World Cocoa Producers Organization and president of the Cocoa Association of Nigeria, and Nigeria desired to adhere to suit to protect its farmers.
In conclusion, the cocoa market in 2023 is expected to show some fluctuations in prices due to factors such as supply and demand dynamics, weather conditions, and geopolitical influences. However, with increasing demand for chocolate and growing awareness about its health benefits, the market is likely to remain profitable for producers and traders. It is crucial for market participants to closely monitor industry trends and make informed decisions to maximize profits and minimize risks.