Cocoa prices hit a 24-year high last week, reaching $3,183 per tonne on the New York futures market, now well above the Fairtrade minimum price floor of $1,600 a tonne. Meanwhile the International Cocoa Organisation (ICCO) revised down its forecasted surplus for next year’s harvest from 100,000 tonnes to 25,000-50,000 tonnes.
It seems that demand for cocoa – which took a hit because of the global recession – is picking up again more quickly than expected, even as production is predicted to fall.
In Côte d’Ivoire, which produces 40% of the world’s cocoa, the 2008-09 harvest was afflicted by disease following an overabundance of rain and yields are predicted to be 20% lower than those of the last season. Traders predict that Côte d’Ivoire's falling output will leave a lasting market deficit. The country has an aging stock of cocoa trees, its heavily taxed farmers have little money or incentive to invest in increasing production, and the quality of the cocoa is falling year by year. National management of the industry is in disarray and there is a severe lack of infrastructure or training support for farmers.
Adverse weather conditions caused by the El Niño weather phenomenon are impacting on cocoa yields from Indonesia and Ecuador.
This means there will be a market deficit for the fourth season in a row, with warehouse stocks severely depleted, as illustrated by this graph from the Financial Times.
This is the context for a growing range of fragmented projects and certification initiatives by the multinational chocolate and cocoa companies to combat a long-term decline in global cocoa production.
These include farmer training programmes from the big cocoa processors like Cargill, ADM and Barry Callebaut. Mars is putting $10m into efforts to sequence the cocoa genome, and committing to certifying its cocoa with Rainforest Alliance and Utz Certified, with the aim of making all its cocoa "sustainable" by 2020. Cadbury launched its Cocoa Partnership to invest in cocoa productivity in Ghana, India, Indonesia and the Caribbean, and has converted its flagship Dairy Milk bar to Fairtrade in several countries.
Of course these initiatives are still small fry next to the marketing budgets of big chocolate. The Tropical Commodity Coalition recently reported that the six big chocolate manufacturers (Nestlé, Mars, Cadbury, Ferero, Kraft and Hershey) spent about 20% of their annual budget on marketing expenses in 2008, an impressive total of $8.6bn.