Why is chocolate getting more expensive?

Easter holidays are getting closer and also the increase in chocolate production. Indeed, millions Easter eggs will be produced for this recurring event, not only in Italy, but in the whole world. 

However, this year, during the purchase of this Easter present, several consumers could be in front of a bitter surprise, due to the remarkable increase in the egg’s price. 

Naturally, the increase in the price doesn’t deal only with Easter eggs, but, in general with chocolate, whose prices are increasing due to an increase in the cost of the raw material for its production, that is the cocoa. 

The cost of the main ingredient for the chocolate production has almost doubled, with its cost increasing by about 90% since the beginning of last year. 

As Financial Times shows, there are several reasons due to this increase in the raw material’s prices. In fact, the prices of the cocoa have recently skyrocketed due to the poor harvest, because of nature disasters, but also because of a record bet of about 8,7 billion dollars paid by the hedge found, that is a private investment fund, that contributed to the jump in the prices. 

Nature disasters

As far as the nature disasters and their impact on the cocoa’s price are concerned, it is important to underline the destructive impact of the climate phenomenon El Niño, that is strongly damaging coca production in Ivory Coast, and in Ghana, the first and the second world produced of cocoa. 

Cocoa cultivation are extremely exposed to climate change, and the heatwave followed by heavy rains have strongly damaged the harvest. 

El Niño is indeed an increase in the temperature of the seawater that occurs every three - five years. It happened last year, and it has brought heavy rain, immediately followed by drought, causing an 11% fall in the global harvest comparing it with the last season, as the InternationalCocoa Organization showed. 

About 70% of the global cocoa comes from Western Africa, and since it is extremely susceptible to price fluctuation caused by climate change, it was unavoidable an increase in the cost. 

Speculative stakeholders 

The price of cocoas has recently increased not only due to hostile climate events, that have deeply damaged the production, but also as a consequence of speculative stakeholders, that have increased in quotation. 

Particularly, as Financial Times shows, there were record speculation for about 8,7 billion dollars by hedge fund, private investment funds, that together with harvest issues have led to an increase in prices, that have doubled in comparison with the first three months of last year. 

Precisely, due to an increase in prices due to famine, the market balance of cocoa market has been damaged, leading to an increase in prices. This event has lured hedge funds, who bet an increase in cocoa prices, whose quotation were to record levels, above 5500 euros per ton. They have thus contributed to a greater fluctuation and increase in cocoa prices. 

Specifically, hedge funds have bought futures, that is to say that they promised to buy cocoa at a predetermined price, that is higher than the price of that time, at a specified time in the future. These activities help company to cover from risks, and they can strongly influence the unpredictability of raw material prices, becoming speculative financial processes. 

Traders have thus gathered about 8,7 billion dollars through future contracts in London and New York, yielding exceptional profits for the funds. 

Farmers and consumers 

Despite the increase in the cocoa price, there haven’t been any benefits for farmers, especially African farmers, whose prices are the same for 12-18 months. On the other hand, instead, an increase in prices would be observable in the consumer prices. This year chocolate prices have already increased of 11% in USA, in the future it is likely that significative increase would be typical also in Europe and in other parts of the world.

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