The world appears to be running out of chocolate, as consumption is now rapidly outpacing current production levels. Citing increased consumption in Asia, Bloomberg reported in 2013 a growing imbalance between supply and demand that would persist until at least 2018. Then in October 2014, leading chocolate manufacturers Mars, Inc. and Barry Callebaut made a similar prediction. So it may seem strange to believe, but chocolate could one day be priced at luxury commodity levels unless production levels manage to ramp up.
- Production Woes: Africa's Ivory Coast and Ghana are the largest global producers of cocoa, the essential ingredient for chocolate, and account for 70% of world cocoa production. In recent years, plantations in these countries have endured unfavorable weather conditions, aging trees whose outputs are limited (while new plantings take up to three years to be productive) and fungal diseases and pest attacks on cocoa crops. Geopolitical pressures have forced some producers to sell their crops at forcibly low prices, which is driving a shift to crops like corn and rubber. Indonesia, the third-largest cocoa producer globally, faces similar issues. Given that these conditions should persist in the near term, global cocoa production growth could be flat to modest in the next few years, and nowhere near enough to match consumption growth. (See related: Information and Advice on Cocoa.)
- Consumption Growth: At the same time, chocolate consumption in Asian countries has increased twofold over the past decade. Essentially, a large percentage of the world's population is starting to discover the joys of having chocolate as a dessert, with chocolate supplanting traditional types of delicacies in India and China.
- Need for More Variety: Asian countries still "only consume per capita about 5% of what the average Western European eats," as the Washington Post notes. Meanwhile, in the West, food producers keep adding more chocolate to breakfast cereals, cookies and even potato chips. There's also a growing appetite for dark chocolate, given its wildly-touted alleged health benefits. The problem is that dark chocolate needs much more cocoa beans to produce than does standard chocolate, which puts a further strain on production.
Cocoa prices rose 24% last year and are up around 60% since 2012, reflecting the above conditions. (Graph courtesy: TradingEconomics.com.) Despite these price hikes, there's still an insatiable consumer demand for chocolate. Mars and Barry Callebaut now predict the chocolate deficit could increase to one million metric tons by 2020 and two million metric tons by 2030.
Any slack in Western demand has been taken up by the booming appetite for chocolate in relatively new markets. Chocolate companies also are using tricks like reducing their chocolate bar/pack sizes while keeping prices the same. (See related: What Drives The Price Of Chocolate?)
That said, the situation isn't entirely bleak. Producers are working to develop stronger breeds of cocoa that will be more resistant to fungal diseases, pest attacks and poor weather conditions. These new breeds also may move more quickly from the sapling to the production stage, thus shortening the typical three-year window. Though earlier attempts in Indonesia have failed miserably, other countries have had better luck with experimenting, particularly in Costa Rica. The fear is that while these modified crops may finally address production quantity issues, it will come at the cost of a drastic decline in chocolate quality.
The Bottom Line
Given skyrocketing consumption and sinking production, expect chocolate to become more and more costly in the near term. Even if there are successful ventures to create new variants of cocoa, the results of these experiments could yield less than expected. Brace yourself for higher costs and possibly less variety at the supermarket. On the brighter side, it could be an ideal time to invest in cocoa and chocolate producers. (Further reading: The Perfect Investment For Chocolate-Lovers.)