The evening I learned the unspoken truth about the cocoa market I was in Yamoussoukro, the colossal capital city of Ivory Coast.

“The problem with cocoa is that’s a poor man’s crop,” explained my dining companion, a government official-turned-businessman. “Do you see any commercial plantation around here? No,” he said. “And do you know why? Because prices aren’t high enough.”

Only because millions of West African farmers saw cocoa as their only way to escape abject poverty, the world had plentiful supply and low prices. As a result, you and I have been enjoying the pleasures of chocolate on the cheap for decades.

Unlike most other agricultural commodities, cocoa hasn’t developed into a plantation business. At the prevailing prices of the 1990s and 2000s, it simply didn’t make commercial sense. The money was made around trading the beans, and processing them into chocolate — not planting, growing, and harvesting cocoa trees.

Today, the crop is still grown overwhelmingly by poor smallholders.¹ Just making enough to subsist, most lack the means to re-invest in their plots. And finally, the decades of underinvestment have caught up with growing chocolate demand. For the third consecutive crop season, global consumption in 2023-24 will meaningfully surpass production — something unseen since the early 1960s.

We are all now confronting the inevitable chocolate crisis.

In the world of commodities, price records have fallen everywhere on the back of the industrialization of China. At the end of 2023, cocoa was one of only four major commodities that still traded below their price peaks set in the 1970s, the previous commodity boom.²

But the 46-year-old record finally fell this month, when the cost of cocoa jumped in New York to more than $5,500 per metric ton. The industry is now abuzz with hyperbole, including predictions of prices doubling again to $10,000 a ton. I don’t think it will get to that. It’s worth remembering that the cocoa beans traded a year ago for $2,500, and that in 2000 they changed hands at just $650.

What’s happening in West Africa will soon be felt in supermarkets around the world. In a conference call with investors on Feb. 8, the day that cocoa prices blew past their previous record, Michele Buck, chief executive officer of The Hershey Co., warned about what’s coming: “We will be using every tool in our toolbox, including pricing, as a way to manage the business.”

While today’s predicament could very well lead to price gouging and shrinkflation at the end of the supply chain, the cause of the crisis resides at the start of the chain in West Africa. There, four countries — Ivory Coast, Ghana, Cameroon, and Nigeria — produce nearly 75% of the world’s cocoa. The king is Ivory Coast, which in a normal year produces 2 million  tons — compared with global consumption of 5 million tons.

The father of the nation’s outsized role in the global chocolate industry is Félix Houphouët-Boigny, the cocoa farmer who became the first Ivorian president after independence from France. Under his rule, from 1960 until his death in 1993, he transformed his nation into the world’s largest producer, overtaking Ghana. Banking on the high prices of the 1970s, he used the brown gold to reshape the country, building a new capital city — Yamoussoukro, including a replica of the Vatican’s St. Peter’s Basilica — and for a while turning Abidjan, the commercial hub, into the Manhattan of West Africa.

Houphouët-Boigny attracted millions of African farmers with generous incentives, including land ownership for whoever planted cocoa trees.³ For the last few decades, the world has benefited from the massive production expansion he triggered.

But the low prices have had consequences. The last wave of tree planting in West Africa took place in the early 2000s, particularly around the northwest of Ivory Coast. Those trees are nearly 25 years old, well past their prime. Husbandry has decayed, too, with little use of fertilizer and pesticide. Old cocoa trees mean two problems: lower yields, and plants particularly vulnerable to bad weather and disease. Both factors are at play this year — punishing farmers who are missing out on the record prices.⁴

The local markets in Ivory Coast and Ghana are tightly controlled by their governments, which set official prices. By selling forward, officials guarantee a price, but that also means that farmers miss out on rallies. For the 2023-24 crop, Ivorian farmers are getting 1,000 central African francs ($1.63) per a kilogram, about 70% below the current wholesale price.

The upshot is a brutal gap between supply and demand. Even when accounting for the damping impact of high prices on consumption, the market is heading for a deficit of 300,000-to-500,000 tons, according to my soundings within the industry. If confirmed, that would be the largest shortfall in at least 65 years — and probably ever.

With demand outstripping output by so much, inventories will fall for the third consecutive year. Inside the industry, I hear that by the end of the season, cocoa stockpiles, measured by the stock-to-consumption ratio, could drop to as little as 25%, comparable to the record lows seen in the 1970s. Considering shipping lags, it means the industry is running on virtually no inventory at all. Cocoa brokers report that’s almost impossible to find offers for beans right now — despite the fact that February marks the harvest peak, when warehouses at West African ports should be full.

There’s another side to the supply problem. In the last 30 years, demand has doubled, and only much higher prices are likely to slow the trend. Still, beyond the US and Europe, global chocolate consumption remains small on a per capita basis, creating new markets for expansion.⁵

Solutions are elusive. And what consumers want clashes with producers’ needs. Everyone from chocolate executives to cocoa traders to non-governmental organizations has spent the 21^st century fretting about the unsustainable supply and demand balance. When I spoke to my interlocutor in Yamoussoukro more than a decade ago, I was travelling throughout Ivory Coast documenting the problem of aging trees and farmers seeking a better way of life.

For all of that time, farmers have been cash cows for all interests except their own: governments have taxed the sector heavily; traders and the confectionary industry have had more than enough beans to keep chocolate prices affordable, expanding sales to a growing class of sweet lovers; and ultimately the consumers, who saw chocolate transforming from a luxury item into an everyday treat.   

Not everyone agrees that current prices are a problem. The farmers outside West Africa with beans to sell — and the ability to do so at prevailing market prices — are enjoying a windfall unseen in generations. For those in Ecuador, Brazil, Indonesia, and Peru, the crisis in Africa is a blessing. They’re sure to turn the current boom into more cocoa trees.

Even in West Africa, the views are more nuanced. While farmers have missed out on the best cocoa market ever, authorities in Yamoussoukro had encouraged less tree planting in recent years to both shore up prices and stop deforestation. By the next season, Ivorian farmgate prices are likely to pick up, giving farmers a cash infusion. In many ways, the current situation would please Houphouët-Boigny, who dreamed of a one-country cocoa cartel, with Ivory Coast fixing the global price.

I’m unconvinced that climate change has anything to do with the current crisis — despite many pundits pinning the trouble on it. The unseasonal rains that have hurt the crop are more likely linked to the El Niño weather phenomenon than to global warming. Yet, it’s clear that more unpredictable weather in the future could be another handicap for the cocoa sector.

For the confectionary industry, the prices present an acute problem. I doubt the sector will be able to pass all the higher costs onto consumers. So margins could fall, and demand growth for chocolate slow down, or even reverse. The producers of mass-market chocolate — think the cocoa that goes into a pain au chocolate, for example — would suffer. Consumers, inevitably, would pay more.

The crisis is a necessary one. The world needs higher prices to encourage the re-planting millions of old trees — and take better care of the current ones. If every farmer applied a little more fertilizer, and had pesticides at hand, production could recover. That, or projected chocolate demand growth needs to slow, if not to fall. Clearly, global cocoa inventories can’t drop much further. Ultimately, cocoa is just another boom-and-bust commodity. Over the next few years, market forces will rebalance the market, but everyone must brace for a few years of higher prices. Bittersweet. — Bloomberg Opinion

¹Around 90% of the world’s cocoa is produced by smallholders, each owning less than two hectares of land (equivalent to the size of about three soccer fields). The average farmer harvests between 600 and 800 kilograms of cocoa beans per year.

²The three other major commodities trading below the nominal price peaks set during the late 1970s commodities boom are: sugar (the record was set in 1974); Arabica coffee (1977); and silver (in 1980).

³Ivory Coast attracted hundreds of thousands of farmers from its northern neighbors of Burkina Faso, Niger, and Mali, particularly during the 1970s period of high cocoa and coffee prices. Whatever the penuries of cocoa cultivation were, life was still better in Ivory Coast.

⁴The weather has been unusually wet in Ivory Coast, and to a lesser extent in Ghana, in the current growing season. The unseasonal rains affected flowering and pod setting, two crucial moments of the development of the crop, according to cocoa traders and agronomists. On top, the region has been badly affected by the so-called swollen shoot disease. The virus, which affects particularly cocoa trees, sharply reduces  yields, and ultimately kills the plants. Although the swollen shoot has affected the region for nearly a century, cocoa traders say it’s now more widespread than ever.

⁵While the average German gulps eight kilograms of chocolate per year — one of the highest per capita consumptions in the world —, the average Chinese only consumes 200 grams. Americans eat about five kilograms of chocolate a year.