The price of cocoa over the last ten years shows how the price of this commodity has become more and more unstable. This is shown in Chart 1. From 2016 to 2023, the price of a tonne of cocoa hovered at just above $2,000. But from the start of 2024, the price of cocoa surged to over $12,000, a 600% increase. The price has fallen back to $8000, but this is still a 400% rise in price.

Chart 1 Source Trading Economics (https://tradingeconomics.com/commodity/cocoa%20)

The current rise in cocoa prices can be looked at in terms of supply factors. Unusually dry weather conditions in the West African countries (Ivory Coast, Ghana, Nigeria and Cameroon) that produce 75% of the world's cocoa have reduced crop yields and significantly decreased market supply.  These countries have also experienced cocoa plant diseases, which have considerably impacted cocoa plantations. In Ghana, for example, about 81% of cocoa farms have been affected, leading to decreased production. There has also been some evidence that the cocoa supply is also being affected by farmers switching their land use to illegal gold mining because of record-high prices of gold.

In addition to rising prices, Chart 1 also shows how volatile cocoa prices have become. This makes farming incomes very unstable for cocoa producers and makes it difficult for the industry to plan and invest. For a country like Ghana, where cocoa contributes approximately 8% to the country’s GDP, cocoa price instability can be problematic for the country’s economic development.

The rising price of cocoa has led to challenges for businesses that use the commodity in their production process. Confectionery businesses such as Mondelez International, Mars and Nestle have experienced an increase in input costs because of the rise in the price of cocoa. Brands like Oreo, Milka, Toblerone, and Cadbury all cost more. In some cases, confectionery firms have kept prices the same and reduced the size of their products in so-called ‘shrinkflation’.

This all means higher prices for confectionery consumers. Given the weighting confectionery has in the basket of goods used to calculate inflation, it also puts further pressure on inflation to rise.

The price of cocoa may fall back to somewhere near its long-term average over time, but the issues raised by the current spike in cocoa prices show how the changes in weather patterns caused by climate change can have an impact on agricultural markets and how this can adversely affect consumers, producers and whole economies.

Some possible points for discussion

1. What is a commodity?
2. Are the weather conditions and plant diseases that have affected cocoa production in West Africa an example of a supply-side shock?
3. How might the price elasticity of demand and supply affect price instability in the cocoa market?
4. Discuss the consequences of the rise in the world price of cocoa on different stakeholders.