Sure, sure today may also be Valentine’s Day. But really, that’s just an opportunity to contemplate everyone’s favourite soft commodity.
That’s right: chocolate bars.
The international cocoa market is a rich, creamy, complicated (and controversial) world, varying from $10 artisanal raw dark cocoa bars to the bulk-bags of foil wrapped hearts in your grocery store. And as consumption of chocolate has increased, so has the price of chocolate has increased – major brands increased their prices by an average of eight per cent last year
How much do people love chocolate? A lot, and that love is growing. The ICCO, the international cocoa organization, says demand has risen for chocolate in recent years and is expected to rise further, especially among the emerging middle class in Asia, Brazil and Russia. Currently world production of chocolate is about 4 million metric tons a year, and predictions for last year’s haul put chocolate sales at almost US$200 billion, a more than five per cent increase in 2014. In the last set of global numbers (from 2012), the Swiss were the top consumers per capita, with each person eating an average of almost 12 kilos a year. Canadians eat an average of 6.4 kilos of chocolate a year, which, based on an average bar size, is at least 160 chocolate bars per year, per person. That puts at 9th place on world chocolate consumption – a kilo more than the U.S. On the supply side, most of the world’s cocoa comes from West Africa, with 30 per cent coming from the Ivory Coast alone.
How does cocoa trade? Cocoa, like oil, is a commodity. Unlike oil, cocoa is a soft commodity (like coffee, cotton and even orange juice), which means it’s grown, not mined. The beans are traded in both physical markets and futures markets, in units of metric tons. Physical markets mean the markets that actually buy and sell cocoa from farms (mostly in West Africa) to processors (mostly in Europe), to consumers (again mostly in Europe and North America.) Futures markets serve two purposes: to “hedge”, i.e. to reduce the risk for buyers cocoa prices will change by the time you need to buy them, and to speculate, by betting on which way the price of cocoa will go for profit. Cocoa futures are traded on exchanges in either London or New York.
What affects chocolate prices? There are a lot of factors currently affecting chocolate prices, which saw a three-year high in the summer over factors that include worry over ebola. One of the factors pushing a general increase in chocolate prices is the increasing demand in countries with a growing middle class, especially Asia. In China, demand has doubled in the last decade. In addition, dark chocolate has become more popular, and a bar of dark chocolate needs more cocoa than a bar of milk.
On the demand side, there are several challenges, the largest of which are due to environmental factors including disease, mould, and drought. Disease has wiped out supply from cocoa farms – for example, an influx of “Witches Broom” turned Brazil from the world’s second-largest producer of cocoa to a net importer. Rising temperatures have also hurt supply, with particularly hot winds from the Sahara, called the Harmattan, drying out cocoa trees in West Africa.
Are we running out of chocolate? Last year, stories started hitting the media about a massive cocoa deficit by 2020 of 1 million metric tons, spurred by reports from some of the world’s largest producers. The idea of a world without chocolate spurred hysteria, but the ICCO quickly stepped in to say the figure had been overblown, and that producers were actually due for a surplus over 2013/2014, with record production from Ghana and the Ivory Coast. Meanwhile, even a the price of chocolate did increase over last year, demand weakened in the final quarter from emerging markets, with grindings (a way of measuring cocoa consumption) dropping by 17 per cent in Asia.
Is my chocolate ethical? Not necessarily. Major investigations have revealed problems including child labour and even slavery in chocolate harvesting, particularly in the Ivory Coast. Major news organizations have run investigations into slavery in the cocoa industry, including CNN’s “Freedom Project”. Consumer pressure has forced some reforms (and have spurred an increase in “ethical” and slavery-free branded chocolate), including minimum cocoa prices intended to push up wages for farmers, but supply chains are still not free of child labour.