Are Chocolate Prices a New Hockey Stick?

Dear God no.

This is not fine.

Sustainability by Numbers:

Agriculture in West Africa is vulnerable to the El Niño (warm) phase of the ENSO cycle. It often leads to drier and warmer conditions. It has suffered intense heatwaves and drought in recent months. While this is expected during El Niño years, climate change could be making these conditions more intense.

The biggest impact on cocoa hasn’t been the temperature itself but the impacts of rainfall extremes on disease outbreaks. West Africa experienced extreme wet conditions late last year, driving an outbreak of “Black pod disease”. This is a fungal disease which tends to spike just after the wet season. If it’s not treated, it can destroy an entire harvest. There are copper-based fungicides that can control the disease and reduce these losses but farmers don’t always have access to – or can’t afford – these chemical pesticides.

This extreme rain was followed by extremely dry conditions, which has helped the spread of another disease: the “Swollen shoot virus”. This disease only occurs in West Africa and is spread by insects called “mealybugs”. Cacao trees see large yield declines of up to 25% in the first year of infection and 50% in the second.

It’s really hard to tackle. Ghana has spent almost a century trying to eradicate it. There is currently no chemical treatment for the virus (or at least I’m not aware of one). Swollen shoot virus is usually managed by getting rid of the visibly infected trees and their neighbours. This means cutting down a lot of trees and plantations. Even then, it’s hard to eradicate the disease completely.

The International Cocoa Organization and cocoa traders estimate that global production could drop by around half a million tonnes this year. That’s around 10% of the world’s usual harvest. This comes off the back of two previous ‘deficit’ years, meaning there is a large shortfall of supplies.

Let’s summarise the cocoa problem down to its fundamentals.

Most of the world’s cocoa is produced in a handful of countries. These countries are highly susceptible to extreme and cyclical weather and crop diseases. This is likely to get worse with climate change. And farmers do not earn enough to properly invest in pest management, and more productive crops.

One obvious solution at a global level is to diversify cocoa supplies. That means larger markets in South America and Asia so the global market is less sensitive to shortfalls from West Africa, where Black pod disease and Swollen shoot virus are concentrated. Farmers in other regions – seeing the recent high prices – might be investing in more cocoa production already. I would not be surprised to see countries such as Ecuador, Peru and Brazil become the dominant producers in the next decade or two.

But that fails to address the root of the problem for farmers in Ghana and the Ivory Coast. They do not have the money to invest in more resilient or protected crops. In the short term, the governments in these countries could lift the fixed price, and pay more to farmers. But if we want a sustainable system, farmers will need to be paid a bigger cut for the cocoa that ends up in our chocolate bars. Fail to do so, and many of the world’s poorest farmers will be left behind.

Next year there could be more disruptions to global cocoa markets. The European Union is due to introduce its Deforestation-free Regulation (EUDR) that bans the imports of any beans that have been produced on recently deforested land. This is a big issue for West African farmers since Europe is its biggest export marketand cocoa farming is a main driver of deforestation. This is a positive step forward for the environment, but makes things more complicated for cocoa bean farmers. Monitoring and tracking every cocoa bean – if that’s even achievable – will add additional costs to different actors in the system. How these costs are distributed, and whether West African farmers need to export elsewhere remains to be seen.