KUALA LUMPUR, MAY 5 — The recent surge in global cocoa prices, caused by a supply shortage, is impacting local chocolate companies throughout the supply chain.
Smaller companies are being cautious in their contracting and planning. The situation has been dragged down by heavy rainfall and crop diseases in the top cocoa producers Ghana and Ivory Coast.
Experts believe price fluctuation and market manipulation would cause worries about the future of the chocolate industry, and other challenges could arise such as decreased affordability, cost pressure on manufacturers, impact on smallholder farmers, disruption in the supply chain as well as quality and sustainability concerns.
It was reported that the global cocoa supply will decrease by almost 11 per cent over the 2023-2024 period, based on findings of the International Cocoa Organisation.
On April 19, 2024, the commodity which used to make chocolate had jumped four times to US$12,218 per tonne from US$3,515.2 per tonne (US$1=RM4.737) on January 2, 2024, according to tradingeconomics.com.
The market, however, melted to US$7,878.8 per tonne on May 3, 2024.
Malaysia: Good old days
During the 1980s, Malaysia was one of the world’s top cocoa producers. However, currently, almost 98 per cent of the country depends on cocoa imports for consumption as West Africa overtook it for quite some time.
To rub salt in the wound, other nations in South-east Asia are now producing more cocoa with Indonesia surpassing Malaysia to become a new top producer, followed by Vietnam.
Plantations and Commodities Minister Datuk Seri Johari Abdul Ghani recently said Malaysia’s cocoa sector has not yet achieved a satisfactory level of self-sustainability, with the production of cocoa beans in the country having declined significantly.
“At one point in the past, Malaysia’s cocoa bean production reached as high as 225,000 tonnes, compared to the current output of only around 500 tonnes.
“The decreasing production of cocoa beans in Malaysia has led to many industries which produce cocoa products having to import cocoa beans from abroad,” he added.
According to the founder of Benns Ethicoa Chocolate factory Wilfred Ng Chee Wai, for the past 40 years, cacao beans have been one of the most undervalued commodities.
“With up to 70 per cent of cacao supplied from West Africa, farmers have long endured poor compensation for their labour, leading to dismal living conditions, slavery, and child labour issues.
“Many farmers have been forced to seek alternative crops to make ends meet, resulting in a decline in cacao supply over the decades. However, the current high price levels bring joy to cacao farmers, finally allowing them to sell their beans at a fairer price and generate higher profits,” he told Bernama.
Smallholders’, farmers’ benefit
Ng said this newfound income will not only improve their living conditions but also enable them to invest in better farming techniques to enhance output and quality over the long term.
“It is high time that farmers are fairly compensated for their hard work and dedication to the cacao industry,” he added.
Meanwhile, economist Dr Geoffrey Williams told Bernama that smallholders may get a better price in the short term, albeit a small percentage but ultimately these higher costs will be passed on to consumers.
“It might spur extra production but only if this lasts for a long time because you cannot just plant and harvest cocoa overnight.
“So, for the short-term, there will be profit-taking at the expense of customers and smallholders,” he said.
Williams said that the current huge spike is attributed to weather conditions but there are long-term structural issues in cocoa production.
“Most growers, around 90 per cent, are smallholders and they have little market power. They have to accept low prices forced on them by big buyers and get less than 10 per cent of the final price.
“Because of this, they have low incomes and cannot invest in better productivity or higher production rates,” he added.
This holds back supply and makes it uneconomical to produce cocoa.
Hence, it is restricted and 60 to 70 per cent is produced in West Africa, Williams explained.
“This is all due to a dysfunctional market and abusive purchasing by big companies at the expense of smallholders.
“This has to change if we want better prices,” he said.
Supply chain effect
Elaborating on the impact on chocolate makers, Ng said that if cocoa prices continue to rise, chocolate makers will encounter challenges such as increased production costs, pressure to raise product prices, reduced consumer demand due to higher prices, and supply chain stress caused by fluctuating prices.
“To remain competitive and relevant, chocolate makers will need to adopt various strategies. Some may even consider alternative ingredients to replace cocoa, potentially impacting the quality of their products,” he said.
Ng also said the rise in cacao bean prices, the primary ingredient of cocoa and chocolate, directly impacts the cost of chocolate raw materials.
“As a result, factories require increased cash flow to secure these essential resources.
“Consequently, chocolate prices will need to rise, leading consumers to pay more for their favourite treats. This shift may eventually slow demand, and the current price levels have placed immense strain on the entire supply chain,” he added.
Ng stressed that cost-cutting is indeed an immediate priority for chocolate companies amidst soaring cocoa prices.
“Some may opt for downsizing or diversifying to mitigate the impact. At Benns Ethicoa, we recognise the importance of cost management, but we also believe in the continual creation of product value and unique offerings to justify a higher price tag and stimulate demand.
“Simply raising prices on existing products may lead to decreased demand. Therefore, we are committed to driving research and development, enhancing consumer engagement, and enriching the overall chocolate experience,” he said. — Bernama
