Tag: Environment

The Spiralling Price of Cocoa Beans

Chocolate producers will soon be increasing the prices of favourite chocolate bars and making them smaller. Why? Because consumers will have to be the ones to pay for under investment, supply line problems and inconsistent weather that is hitting the growers of cocoa beans. In the the past few months the rise in the price of cocoa beans has been relentless, which is reflected in the futures market in London when on Tuesday 28th February 2024, the cocoa futures traded at a record high of GBP5,827 per tonne as opposed to a year ago when the price was GBP1,968, an increase of 296.08%.

There are a number of factors impacting the rise in cocoa prices: one of which is weather. In Ghana and the Ivory coast, who between them produce circa 66% of the worlds cocoa beans, (Ghana 16%, Ivory Coast 50%) poor weather has affected crop yields. Furthermore, El Nino returned in 2023 (which occurs every three to five years) which brings very dry heat preceded by unseasonal heavy rainfall to both Ghana, the Ivory coast and the rest of the region. Data released by the ICCO (International Cocoa Organisation) forecasts that the cocoa crop on a global basis will be 11% less than last year.

Experts advise that the current situation is far from being temporary. Whilst it is agreed the current price surge is down to El Nino together with speculators in the financial markets going big time into futures, there are deep structural problems underpinning a lack of production along with massive underinvestment. Problems that are here to stay. However, many commentators wonder that with the prices being so high, reinvestment in cocoa farms should not be a problem.

Today many farmers’ trees are suffering from swollen shoot virus, which is transmitted by mealy bugs, and cocoa pods are rotting thanks to a fungal disease, caused by the high humidity created by heavy rainfall. The only way to combat swollen shoot virus is to rip out the trees and many farmers in Ghana are saying that most of their trees are ending their life cycle. Whilst there are new seeds that can adapt to the climate change, many farmers do not have the money to invest, and as such are moving into alternative easier to produce crops such as Cassava (a tuberous root from which cassava flour, breads, tapioca and a type of starch are derived).

Many of the farmers have not got the cash to buy pesticides and fertilisers and have not planted new trees since the year 2000. So, why do the farmers have no money to invest? One simple answer is the companies/individuals in the middle are taking advantage of the difference in the sales price to the farmers and current price in the markets. For example, on Monday 4th March 2024 in New York, cocoa future prices were traded at USD6,648 per tonne, yet one farmer in Ghana gets paid USD1,700 per tonne. Experts advise that unless the situation is addressed, yields will only get lower and lower, with the obvious result being the end product of chocolate prices going through the roof.

In the pas, both the Ivory Coast and Ghanaian governments have taken steps to protect farmers from low prices by forming an export cartel modelled on OPEC (Organisation of Petroleum Exporting Countries). The price per tonne to farmers is based on the average price of the previous season and is to protect them from bad times but also in the good times such as now, the farmers cannot benefit. Furthermore the cartels, Cocobod (Ghana Cocoa Board) and CCC (Conseil du Café-Cacao – Ivory Coast), justify the low prices as they are supposed to provide new trees, pesticides and fertilisers, but in truth this rarely happens.

The put it simply, cocoa farmers are being shortchanged and, though production is falling, demand globally for chocolate has doubled in the last twenty years. The ICCO has released data predicting that in 2024 demand will outstrip supply to the tune of 370,000 tonnes. In the meantime, chocolate makers have adapted to market conditions and analysts advise that last year Mars shaved 10 grams off their standard size galaxy bar and repacked the smaller size at the same price. This is a standard practice when the cost of cocoa rises, sell consumers smaller amounts of chocolate at the same price or produce confection with no chocolate at all. 

Many chocolate companies are focusing their marketing on filled or lower-chocolate products, and recent data released suggest that over 40% of segmented or moulded chocolate bars that are currently being sold in the United States are filled with other products such as caramel, fruits or nuts. This shift to lower chocolate products were on display in adverts during the recent Super Bowl (2024), where circa 124 million people saw M&M’s (Mars) filled with peanut butter and Reese Cups (Hershey’s) filled with added caramel. Other methods of cost savings by some companies is replacing cocoa butter (circa 20% of cocoa butter makes up an average milk chocolate bar) with a cheaper substitute such as palm oil. Most of the switches though are on non-premium applications such as fillings in bakery items and thin coatings, such as those found in granola bars, rather than on the premium or traditional chocolate bars.

At the ports in the Ivory coast as of 11th February 2024, data released show that cocoa arrivals totalled 1.09mt so far for this season, reflecting a fall of 33% year on year. Experts are predicting that Ghana’s crops could be as much as 25% lower year on year, taking stocks to their lowest levels in over ten years. However, despite the prices for consumers (both household and business), destruction of demand has not been enough to balance the market which suggests that a further increase in prices will be needed to balance supply and demand. Indeed, looking at data released for grinding* for Asia, North America and Europe, grindings for 2023 were down overall by circa 4% year on year, where in Asia grinding fell by 5% year on year, North America fell by 9% year on year and Europe fell by 2% year on year.

*Cocoa Grinding – This is the process of converting cocoa nibs (also known as cacao nibs, which are crumbled bits of dried cocoa beans which grow on the cocoa tree) into fine powder then into chocolate. They need to be ground at high speed for several days  in order to become smooth craft chocolate bars. 

Figures released show that in Europe  between 2024 and 2027 the annual growth rate of the chocolate market is expected to expand at 4.95% but with supply contracting prices will increase at a faster rate. Furthermore, in Brussels there are major concerns that cocoa production is linked with child exploitation and deforestation which is contrary to their rules on ethical production. It is reported that due to expanding cocoa plantations, the Ivory Coast has since 1950 lost 90% of their dense forests. Come 2025, the European Union (who import 50% of Ivory Coast’s cocoa yield) will ban any sale of chocolate derived from deforestation under the EUDR (the European Union’s regulation on deforestation-free products), which will potentially push chocolate prices even higher. 

It seems a formality that from restaurants to households the price of purchasing chocolate will continue to appreciate at an alarming rate unless cocoa farmers receive critical investment in the near future. The cost of chocolate may well become prohibitive and could suddenly be classed as a luxury item, as producers of chocolate look to grow output of lesser chocolate products in the marketplace. The figures for Europe show that demand is ever increasing, and Switzerland will particularly suffer as they are the largest per capita consumers of chocolate in the world, with data released in 2023 showing the average person consumed 11.8kg of chocolate in 2022. By 2027, this may all be ancient history, unless pressure is brought to bear on Ghana and the Ivory Coast to reinvest in their cocoa farmers, otherwise enjoying a quick bite of chocolate may be a thing of the past.

Will Renewable Energy Suffer Due to a Shortage of Copper? 

For those government ministers throughout the world in charge of renewable energy, the year on their lips is 2030, where global renewable energy capacity is expected to grow by 2.5 times. However, governments need to go further to achieve the goals that were agreed at the 2023 United Nations climate talks. Part of the report coming out of this meeting suggests that the biggest challenge to meeting the 2030 goal will be the deployment of renewables and the scaling up of financing in most developing and emerging economies. But there is one more important constituent to consider…

The retooling of transportation and power to run on renewable energy goes a lot further than just political will, it will actually require more copper than the mining companies are currently committed to deliver. The big question is: will the mining companies, who are by tradition cautious (and are having to deal with increasing rigorous regulations) invest the capital required to help the world reach their 2030 goal and beyond? The current belief by experts suggest this will not happen as currently Anglo American Plc is facing a USD39 Billion takeover bid by BHP Group Ltd, suggesting that investment is angled towards mergers and acquisitions rather than increasing growth in production. 

When it comes to conductive metals, copper is second in line after silver, and the comparisons made between the use of copper in renewables compared with non-renewables is staggering. Data released from the Copper Alliance shows that wind and solar farms require more copper per unit of power produced than today’s gas and coal fired power stations. In order for renewable energy to meet future demand more complex grids have to be built, and in order to balance the intermittent supply, millions of feet of copper wiring will be required. Another statistic shows that electric vehicles use twice the amount of copper than petrol driven automobiles.

There are, however, socio and economic barriers in the way of increasing copper production. Experts suggest there is enough unmined copper to serve future world demand, but copper is a bellwether within the global economy falling and rising together with industrial production, and miners for decades have been very wary by increasing production then getting caught out by a drop in demand. Furthermore, on the excavation side, new deposits are getting more expensive and harder to extract, and with ore grade decreasing, more rock has to be excavated to secure the same amount of copper. Environmental scrutiny is ramping up which is also discouraging further investment in production. 

Recent data released suggests that over the next ten years the mining industry will have to spend circa USD150 Billion to cover what is projected as an annual shortfall in supply of 8 million tons. If there are severe copper shortages in the future this would cause a surge in prices affecting smart grids, renewables, EV’s and would slow the pace of turning to renewable energy. Whilst higher prices would incentivise miners to increase production in tandem with higher demand, experts suggest it would take a decade for the world to feel the difference. For those companies manufacturing clean energy technologies, it may well be prudent to try and find, if not an alternative to copper, but a way of using less, otherwise such goals as the 2030 and beyond renewable energy goals may become difficult to achieve.