Bad news for chocolate lovers – cocoa prices have soared to their highest price in 50 years amid a global cacao bean shortage. It’s driven the price of chocolate up by almost 10%, right in time for Halloween.
So, what has made chocolate so expensive all of a sudden?
Weather conditions and climate have a big part to play, said Greys Sosic, senior vice dean at USC Marshall School of Business. “Cocoa is one of the main ingredients in chocolate production, and its growth requires hot temperatures, high humidity, and a lot of rain, which only exists in a small number of countries,” she said. “Cote d’Ivoire and Ghana account for about half of the world’s production.”
But right now, West African countries are seeing the opposite, and experiencing an unusually warm and dry growing season due to the naturally occurring El Niño weather phenomenon. As a result, cacao bean crop growth is suffering.
According to Dr. Raj Rajagopalan, a supply chain management specialist, the changing weather conditions have adversely impacted supply, while demand has remained quite stable. “So, naturally, prices have to increase,” he said. “While general inflation definitely has some impact, in this case the reason is more specific – an increase in cocoa prices.”
Cocoa futures have now surged to $3786 per metric ton, their highest price since 1979 (Figure 1). Research from the National Retail Federation predicts that Americans are expected to spend around $3.6 billion on Halloween candy this year, up from $3.1 billion last year. This increase in spending is not due to a greater volume of chocolate being sold, but rather higher prices because of both inflation and the cocoa shortage.
This price hike is likely to be reflected across the market, said Chris Tang, a UCLA distinguished professor in supply chain management. “Many brands of chocolate have been consolidated and are controlled by only 3 firms in the US: Mars, Hershey, and Nestlé,” he said. Because of how little competition there is in the chocolate manufacturing market, many Halloween favorites are likely to be affected by the price increase.
Lars Perner, a USC Marshall professor and expert in consumer behavior, pricing and holiday shopping, believes retailers have no choice but to push these higher prices down to consumers. “Supermarkets already have very low margins…we’re talking a net of around two to three percent. So, they can’t absorb the higher production costs themselves, or then we’d run into an even bigger problem of shortages,” he said.
The laws of economics state that limited supply must be rationed in some way when demand remains unchanged. In other words, either chocolate prices have to rise, or the quantity must fall.
“Historically, candy makers have tended to ‘downsize’ candy items.” Perner said.
That’s what happened when chocolate prices increased in the late 1970s. Firms found it difficult to raise candy bar prices so instead simply kept prices the same and made the bars smaller in size. “But now candy sizes have shrunk so much that it’s difficult to downsize any further,” Perner said.
With consumers having no choice but to pay more for their chocolate fix, Perner suggests that they might get more creative with their Halloween treats this year: “You might find people giving out a piece of a candy bar rather than the entire bar itself. Some people are even starting to give children small amounts of money or healthier options like fruit.”
But it’s not just Halloween – chocolate prices are expected to continue to rise in line with El Niño through the first half of 2024. Sosic said that this will make growing conditions difficult next year as well. Similar effects were noticed in the sriracha shortage this year, which was caused by drought conditions in Mexico in early 2022.
But the problems don’t end with El Niño. A 2013 study by Peter Läderach, a climate change researcher, found that almost 90% of cacao production locations will be unsuitable for harvest by 2050, which means that chocolate could soon become more of a luxury good than a regular purchase unless producers think of solutions – and fast.
“One adaptation strategy could be providing cacao growers with selectively bred seeds that have superior drought resistance.” Perner suggests. If the shortage continues, Perner believes we’ll see chocolate go on sale or be discounted less often, which is likely to affect consumer spending patterns too.
With Halloween only days away, it seems like many people will be getting more of a ‘trick’ than a ‘treat’ this year.
Photo courtesy of Tamorlan / CC BY 3.0