Cocoa crisis: Can India turn this misery into opportunity?

In recent months, the price of cocoa has surged to an all-time high. At about US$ 10,000 per metric ton in March 2024, the prices have more than doubled over the last year due to a global supply shortage which is largely attributed to climate change. The surge in cocoa prices is influencing retail pricing strategies of the companies that are facing significant challenges in managing input costs.

However, this global upsurge in cocoa prices is indeed a bright opportunity in the offing for homegrown cocoa, given the sharp rise in domestic consumption of chocolates alone. Can Indian cocoa industry rise to the occasion?


Source: Pixabay

Calling all chocolate aficionados (all of us?), you may have to brace yourselves for some bittersweet times! The cocoa world is currently in the throes of a dramatic upheaval, and it’s sending shockwaves through our favorite indulgence. Picture this: cocoa prices hitting an all-time high of nearly US$10,000 per metric ton in March 2024, marking a staggering 136% surge from July 2022 to February 2024, as per the UNCTAD’s commodities price monitoring report!

What does this mean for us, the loyal devotees of all things chocolate? Well, get ready to feel the ripple effect, because it’s not just our taste buds that are in for a rollercoaster ride. With cocoa prices soaring to unprecedented levels, the days of affordable chocolate bliss might be numbered. From the cozy corner café to the grand confectionery houses, chocolate makers worldwide are grappling with the challenge of balancing quality and affordability in the face of skyrocketing costs. It’s a tantalizing tale of supply chain woes and market dynamics that’s sure to leave a bitter taste in the mouths of chocolate enthusiasts everywhere.

Factors driving cocoa shortage and ensuing price increase

One of the primary reason behind the growing shortage of cocoa is that there is a substantial concentration of cocoa supplies in one particular agricultural region.

Cocoa trees only grow within 20 degrees north and south of the equator. The cocoa tree requires specific weather conditions. It needs temperatures between 69.8-73.4 degrees Fahrenheit, high humidity, constant rain of 39.4 to 98.4 inches per year, nitrogen-rich soil, and protection from hot, dry winds and drought. This explains why cocoa is mostly produced in the hot and humid regions of Africa.

West African countries of Ghana, Nigeria, Cameroon, and the Ivory Coast produce most of the world’s cocoa. Africa is the leading supplier of Cocoa, followed by Central and South America, Asia and Australia.

However, drought conditions attributed to climate change have destroyed cocoa crops in West Africa, which produces around 80% of the world’s cocoa. The two largest cocoa producers, Ivory Coast and Ghana, have been recently hit by heavy rain, dry heat and diseases.

Additionally, cocoa plantations receive limited investments – most smallholder farmers who grow the cocoa crop continue to struggle to make a living. They are unable to reinvest in their land, which eventually results in lower yields. Investor speculation is further adding fuel to the fire and pushing prices higher.

According to a recent report from Wells Fargo, excess rainfall had caused an increase in diseases among cocoa trees during the last crop season. This year, the El Nino is producing dry temperatures and extreme winds. Owing to the continued weather issues, cocoa harvests are falling short for the third year in a row, as noted in the report.

The International Cocoa Organization projects that during the 2023–2024 season, the world’s cocoa supply will drop by approximately 11%. There will be a deficit of about 374,000 tons this season, a steep rise from 74,000 tons last season. The global shortage of cocoa is understandably causing a sharp increase in cocoa prices across the world, including India.

How it impacts the Indian market

Cocoa is in fact a versatile ingredient that finds its way into various end-use industries beyond just chocolate production. Here are some of the key industries where cocoa plays a significant role:

  1. Chocolate Manufacturing: Cocoa is the primary ingredient in chocolate – from milk chocolate bars to dark chocolate truffles.
  2. Bakery and Confectionery: Cocoa powder and cocoa butter are essential ingredients in baking. From cakes and brownies to cookies and pastries, it adds that rich, chocolatey flavor to a wide range of baked goods and confections.
  3. Beverages: Cocoa is used to make various beverages, including hot chocolate, chocolate milk, chocolate-flavored liqueurs, and even chocolate-flavored beers and wines.
  4. Desserts and Ice Cream: Cocoa is used to flavor a variety of desserts, including mousses, puddings, custards, and ice creams. It’s also a key ingredient in chocolate sauces and syrups.
  5. Health and Nutritional Products: Cocoa contains antioxidants and other beneficial compounds, so it’s often used in health supplements, protein bars, energy drinks, and nutritional shakes.
  6. Cosmetics and Personal Care: Cocoa butter, extracted from cocoa beans, is used in skincare products like lotions, creams, lip balms, and soaps for its moisturizing and nourishing properties.
  7. Pharmaceuticals: Cocoa extract is sometimes used in pharmaceuticals and herbal remedies due to its potential health benefits, including its antioxidant properties and mood-enhancing effects.
  8. Flavoring and Aromatherapy: Cocoa is used as a flavoring agent in various food products, including cereals, snacks, and candies. Cocoa-scented candles and aromatherapy products are also popular for their comforting and relaxing aroma.

In India, cocoa prices (dry beans), which were around Rs 180 per kg less than three years ago, have surged to Rs 325 per kg, Cocoa prices are currently at their highest in 45 years. Despite this, India’s chocolate consumption is predicted to exceed 156 thousand tons by 2026, demonstrating the country’s resilient appetite for chocolates. The cocoa is consumed in the chocolates industry as well as in non-chocolate products like biscuits and dairy products.

India's trade in cocoa products_TPCI

The key factors driving the growth in the domestic market include- the rise of e-commerce platforms across the country, the easy access to a wide range of domestic and international chocolate products, and the introduction of new flavors and packaging formats by the manufacturers. Manufacturers are also responding to the demand of Health-conscious consumers by introducing organic, vegan, sugar-free, and gluten-free chocolates.

According to the “India Chocolate Market Report 2024-32”, by International Market Analysis Research and Consulting Group (IMARC Group), India’s chocolate market reached US$ 2.6 billion in 2023, is expected to reach US$ 5.3 billion by 2032 at CAGR of 7.7%.

Cocoa is a commercial plantation crop in India. Kerala, Karnataka, Andhra Pradesh and Tamil Nadu are the major cocoa producing states in the country. India produces around 27,000 tonnes of cocoa annually.

While the demand for cocoa in the chocolate industry and confectionaries is growing rapidly, the domestic production of cocoa beans is not sufficient to meet the increasing demand of the industry. India imports about 100,000 tonnes worth of cocoa-based products to meet the demand.

India’s imports of Cocoa & Cocoa products were recorded at US$ 438 million in value during 2023, declining by 4.9% YoY. However, on a 5-year basis, they have grown at a CAGR of 10.6%.  The top imported categories were cocoa powder not containing sugar or swtg material (US$ 130.73 million) and cocoa butter fat & oil (US$ 100.9 million).

India's imports of cocoa products by segment_TPCI

The country currently imports approximately 70% of its cocoa needs from West Africa and other regions. Major countries supplying cocoa products include – Indonesia, Congo, Singapore, Italy, and Uganda.

How brands are coping

The effect of this decadal high price of cocoa will be difficult for companies to absorb completely. While some companies are already considering price hikes, others are contemplating alternative strategies. One possibility is to substitute cocoa butter with alternatives approved by the Food Safety and Standards Authority of India (FSSAI), and shrinking pack sizes. Being concerned about the impending uncertainties surrounding cocoa prices, companies are also re-negotiating their contracts with suppliers. Industry sources state that companies will have to source cocoa at higher rates if prices remain high in the upcoming months as they do not have enough inventory to sustain them for long.

Cocoa beans_TPCI

Image by 526663 from Pixabay

In view of the rising cocoa prices, some chocolate makers such as The Whole Truth (TWT) – the Mumbai-based clean label D2C food brand, have discontinued milk chocolates and  simultaneously raised the prices of their dark chocolates, from Rs 200-299 to Rs 299-375. Parle Products stated that it may initially raise prices by 10-15% over the next two months.

The Hershey Company earlier hinted in February that it may increase the price of its products this year. Mondelez has also indicated that it plans to raise prices so as to offset the upsurge in cocoa prices. Nestle India, however, stated that it is closely tracking the situation. Amul is similarly said to be considering gradual price increases, in response to rising cocoa prices. Paul and Mike, a bean-to-bar chocolate brand is likely to raise prices by 5% soon. Similar approaches are being used by other industries

The way ahead

Globally, both producers and experts are in a dilemma, as this price surge is clearly unprecedented. In this context, a study from Henley Bridge ingredients has predicted that chocolate prices could stay worryingly high for the whole of 2024. Unfriendly weather conditions and rising demand from emerging markets is creating a mega supply deficit. According to the report, the market could possibly correct on its own as rising prices ultimately compel some consumer segments to shift back to imitation chocolates.

As global cocoa prices are skyrocketing, Indian cocoa growers are benefiting from higher profits and a spike in demand for the homegrown cocoa. Considering the spike in price of cocoa, farmers who have been growing cocoa as an intercrop for decades, are now beginning to focus more on cocoa crop production. The prevailing global shortage of cocoa and the consequent price rise is expected to bring about a shift of priority toward domestic cocoa sources. Many businesses may now consider procuring cocoa from within the country.

Clearly, the crop has huge untapped potential with an estimated 3 lakh hectares of irrigated coconut, areca nut and oil palm areas in the south. However Pankaj Raval, National Sales Manager, Jindal Cocoa, opines, “Indian cocoa is still in short supply, so companies have to depend on imports. Government needs to encourage cocoa production.”

A report in this regard by S. K. Malhotra, Venkatesh N. Hubballi and Chowdappa P. indicates some key strategies that need to be adopted in this direction that include:

  • Building a cost effective cocoa production ecosystem
  • Focus on research, development and extension to make cocoa a driver of rural economic prosperity
  • Evolution of varieties that are durable and resistant to pests, heat, drought, etc.
  • Region-specific technology adoption based on maximum productivity of available natural resources.
  • Production and post-harvest technologies to improve product quality and minimise environmental impact
  • Adoption of best practices to ensure production of high quality cocoa
  • Strengthening of domestic cocoa supply chain, establishment of village level processing units, along with capacity for drying and fermenting of cocoa beans.

It may be noted that India has witnessed huge growth in chocolate demand, and yet its per capita consumption remains very low at 100-200 gm per year. For a benchmark, you may consider European countries (5-10 kg per year) or even Japan (2 kg per year). On the other hand, India’s dark chocolate market surged to US$ 86 million from US$ 41 million in the past five years, a CAGR of 16 per cent, while the milk chocolate segment grew at a CAGR of 11%, according to Euromonitor.

If India successfully unlocks the formula for boosting cocoa production, it could significantly amplify economic opportunities for its farmers. This achievement would likely provide a stable and growing market for them for years to come.

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