Indian growers begin reaping flavours of global cocoa price surge

Indian cocoa growers are reaping the benefits of a surge in global cocoa prices, which have nearly doubled since the beginning of this year leaving consumers worried over the price they have to pay for their favourite chocolates.

The price rise in the global market has led research agency BMI, a unit of Fitch Solutions, to raise its 2024 average price forecast for ICE-listed second-month cocoa futures contracts from $3,750 per tonne to $6,000 — a 60 per cent increase.

On Wednesday, cocoa July futures in London were quoted at £6,061 a tonne ($7,692). Prices have declined from the record £6,332 witnessed a couple of sessions ago. For cash, the beans are available at $8,080 a tonne. 

The major reason for cocoa’s historic bull run is a drop in production, particularly in Cote D’Ivorie (Ivory Coast), where supplies are likely to be 30 per cent lower, and Ghana. 

Output to drop 10%

Krishnakumar HM, Managing Director of Central Arecanut and Cocoa Marketing and Processing Cooperative (Campco) Ltd, a grower co-operative, told businessline that climate change, El Nino impact and a viral disease related to the cocoa root led to plant destruction in some parts of the globe.

“We expect that global cocoa production will fall by 10.8 per cent year-on-year in 2023-24, from 5 million tonnes (mt) in 2022-23 to 4.46 mt. This decrease is the main factor behind the increased pressure on cocoa prices  and we expect this to persist through H124 and into H224,” BMI said.

The International Cocoa Organization has projected that the global 2023-24 cocoa deficit would widen sharply to 374,000 tonnes from 74,000 tonnes in 2022-23, largely due to unfavourable growing conditions and crop disease.

The global trend has, on the other hand, helped Indian growers. Krishnakumar said. Cocoa growers are getting around ₹160-175 a kg for wet cocoa beans. It was around ₹55 a kg during the same period a year ago. “Dry cocoa beans are being purchased at ₹560-600 a kg. This was at around ₹220 a kg a year ago,” he said.

‘Field year’

According to GVSR Prasad, a farmer who grows cocoa as an inter-crop with coconut at Tadikalapudi village in Andhra Pradesh’s West Godavari district, growers in his State are getting ₹650 a kg for dry cocoa beans against ₹220 a year ago.

Nitin Chordia, India’s first chocolate taster who runs Cocoshala — a training -cum-incubation centre for small chocolate makers, said cocoa growers have been having a “field year” with prices rising vertically. “This has never happened before and the higher prices come at a time without any increase in input costs,” he said. 

Most growers do not have the capacity to hold back their produce and hence could have been selling even as prices were rising. “Those who have the capacity to hold back are perhaps waiting for prices to touch ₹700,” the chocolate taster said.

“Farmers are getting at least 90 per cent of the market prices. It is good money,” said Devabhaktuni Durga Prasad, Managing Director of Hyderabad-based DP Cocoa Products Pvt Ltd.

Stagnant Indian output

According to Krishnakumar, cocoa is cultivated on 1.12 lakh hectares in Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. The yield is around 250-300 kg/ha, and the annual production of dry cocoa beans is around 20,000 tonnes.

The Ministry of Agriculture and Farmers Welfare had pegged cocoa output for the 2023-24 crop year at 29,000 tonnes in its first advance estimate. Indian production has been stagnant over the last few years, though, said the Campco Managing Director. 

GVSR Prasad said companies which had hitherto never looked at the domestic cocoa crop are now wanting to buy from them.

Campco’s Krishnakumar said, “Earlier only Campco and Cadburys were buying from growers. Now because of the shortage in the international market every player is approaching the growers for cocoa. It is a buyers’ market now,” he said.

Chordia said, “To some extent, companies such as Hershey, Nestle and Mondelez are looking to source cocoa from India.” 

Producing premium cocoa

Indian cocoa growers have begun to produce fine-flavoured cocoa, which is of premium quality. “But its production is hardly 100 tonnes and hence we are unable to meet the rising demand,” the Cocoshala founder said.

Fine-flavoured cocoa growers may not be enthused now to produce more as the premium they were enjoying earlier has declined. “When bulk cocoa was ruling at ₹220 they were getting  ₹370 a kg. Now, when bulk cocoa prices are  ₹600, they may get around  ₹800 only,” Chordia said. 

With wet cocoa beans expected to reach markets in another 20-30 days, Campco will aggressively buy from domestic growers, said Krishnakumar.

The higher prices will result in better crop care. DP Cocoa Products’ Prasad said growers may apply more manure for their crop now.

BMI said the higher prices for the beans will result in lower grindings. “The latest data on cocoa grinding from Q423 confirmed our expectations of softening in cocoa consumption due to price pressures. Looking ahead, we forecast that global grinding demand will be down 4.2% y-o-y in 2023-24,” he said.

Record bets on price rise

Chordia said companies were buying hand-to-mouth and Hershey has reported a 30 per cent drop in sales. “This will translate in purchases from growers dropping,” he said pointing out to the fact that the prices doubling for a 30 per cent supply shortage may not be sustainable. 

However, in the long-term cocoa demand has shown a rise despite the price trend, he said.

DP Cocoa Products’ Prasad said the rise in demand showed that cocoa was price inelastic. “Consumers continue to buy despite price rise,” he said.

Chordia said one of the reasons for cocoa prices zooming is speculation. “All of a sudden speculators have found they can make a fortune in cocoa,” he said. 

According to Hedgeweek,  figures from US’ Commodity Futures Trading Commission (CFTC) show that traders have built a record $8.7 billion position in London and New York cocoa futures, betting that prices will continue to rise.

BMI said CFTC’s latest Commitment of Traders report shows that net long positions in cocoa futures reached 82,572 on January 23, 2024, the largest net long position since January 2022.

Bitter chocolate?

The price rise may result in a hike in chocolate prices, albeit a bit later. DP Cocoa Products’ Prasad said the corporate have hedged their positions and hence, it would take six months to hike products price. 

Chordia agreed with the view and said it was unlikely that companies will resort to any cut in weight as they may have to go in for new packaging.

However, one of the fallout of the price surge is that no new product may be introduced. “Research and development has been put out of business due to this price surge. So, innovations will not take place and new products will have to wait,” he said. 

BMI forecast that beyond 2023-24 the global cocoa market will return to a narrow surplus, contingent upon normal weather conditions.

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