Onome Amuge

The collapse in cocoa prices this year, amounting to a 45 per cent fall since January and more than 50 per cent below last year’s record highs, has offered a brief sigh of relief to manufacturers battered by soaring input costs. However, industry analysts warn that the  correction, which has taken benchmark prices down to roughly $5,000 a tonne, conceals a more troubling set of structural weaknesses across the supply chain. 

After climbing to nearly $12,000 a tonne at the end of 2024, driven by weather disruptions, disease outbreaks and speculative trading, the market has undergone a rapid rebalancing. The easing of El Niño conditions and improved harvest projections in Côte d’Ivoire, the world’s largest cocoa producer, have deflated expectations of further supply deficits. Traders have also unwound positions that had amplified last year’s rally.

Yet the current price level remains roughly double the average seen between 2012 and 2022, underscoring the degree to which cocoa has entered a more volatile and uncertain era, one in which price swings reflect deeper fragilities rather than temporary distortions.

“After two years of tension, the current correction is bringing cocoa prices back to more rational levels. But it would be illusory to talk about normalisation: the sector remains fragile due to structural constraints and a very high geographical concentration of bean production,” said Simon Lacoume, a sector economist. 

West Africa accounts for close to 60 per cent of global output through Côte d’Ivoire and Ghana alone, and 70 per cent if neighbouring producers are included. This leaves the entire chocolate industry exposed to a narrow band of climatic, political and economic conditions, an imbalance that becomes more precarious as environmental pressures mount and plantations reach the limits of their productive lifecycles.

For chocolate producers, particularly mid-sized African manufacturers and South African retailers who bore the brunt of last year’s extraordinary commodity inflation,the retreat in prices offers the first meaningful hope of margin repair. Some companies have been forced to reformulate product lines, shrink bar sizes or push through repeated price rises to offset the rise in raw material costs.

With cocoa now trading at less than half last year’s peak, input costs are easing just as manufacturers prepare for the festive season, a period that contributes disproportionately to annual sales. Retailers say that if the current price trend stabilises into the fourth quarter, consumers may see greater promotional activity and fewer price hikes on branded confectionery.

But executives remain cautious. Many note that cocoa is still significantly more expensive than it was for most of the past decade, and that other pressures, including global sugar inflation, higher financing costs and ongoing supply chain bottlenecks,mean that retail prices will not fall as quickly as the commodity market suggests. Some manufacturers locked in high-cost inventories earlier in the year, delaying the benefit of the recent price drop.

Behind the market correction lies a set of structural challenges that show little sign of abating. Farmers across Côte d’Ivoire and Ghana are contending with ageing trees, depleted soils and years of underinvestment in seedlings, disease control and farm renewal. The swollen shoot virus, while less severe than during the height of last year’s outbreak, continues to depress yields across significant swathes of farmland.

The economics of farm renewal remain punishing. Cocoa trees typically reach peak productivity after five years and begin a gradual decline after around 15, falling below break-even levels during the last 10 to 15 years of their 25- to 30-year lifecycle. Farmers must choose between operating at sharply reduced income, replanting and forgoing revenue for half a decade, or converting land to more profitable crops such as palm oil and rubber.

The result has been a creeping shift of cocoa cultivation into forested areas to capture what analysts call “forest rent”; the higher yields associated with nutrient-rich, newly cleared land. The practice contributes to ongoing deforestation across West Africa, despite tightening regulations and high-profile conservation pledges.

Pressure is mounting across the value chain. The EU’s forthcoming deforestation rules, which will require companies to prove the geographic origin of cocoa beans and ensure they were not grown on recently deforested land, are expected to raise compliance costs. Many smallholder farmers, who constitute the majority of West African production, lack the documentation needed to satisfy EU buyers, risking exclusion from the bloc’s €100 billion chocolate market.

Producing countries are also asserting greater control. Ghana and Côte d’Ivoire have both introduced Reference Prices for a Decent Income (PRRD), setting minimum farm-gate prices of $3,408 per tonne in Ghana and $2,650 per tonne in Côte d’Ivoire to stabilise farmer incomes and counter the historic imbalance in the global value chain. However, higher floor prices may constrain the ability of grinding companies to pass lower market prices downstream, complicating procurement strategies.

Meanwhile, grinding, the process of turning beans into butter and liquor, remains dominated by Europe, particularly Germany and the Netherlands. Four multinational processors control roughly two-thirds of global capacity, limiting competition and reinforcing a division in which most value is captured far from the farms that supply the raw cocoa.

Latin America, particularly Ecuador, is positioning itself as a challenger to West Africa’s dominance. The country aims to produce 650,000 tonnes of cocoa annually by 2027, potentially surpassing Ghana. Its focus on fine-flavour varieties, diversified microclimates and more advanced traceability systems has attracted premium buyers.

But analysts caution that even if Ecuador expands rapidly, global dependence on West Africa will persist for years. The concentration risk remains high, and the recent price crash may deter investment in rejuvenating the region’s ageing plantations, sowing the seeds for future shortages.

Despite higher prices, global demand for chocolate has held up, supported by rising consumption in Asia and sustained growth in premium, organic and ethically certified segments. Confectionery majors report robust sales in high-end lines, even as mass-market products face more price sensitivity.