Prices for cocoa beans collapsed to a nine-year low during the March trading on commodity exchanges in London and New York. The fault to all is the excess of raw materials in the countries of Africa - the main suppliers of this product. However, the situation on the market will not affect the cost of the final product. RT understood why in the medium term, prices for chocolate can decrease by only 2-3%.
By March 2017, world prices for cocoa beans collapsed by 35% - a record since 2008, according to Bloomberg analysis based on data from the London and New York commodity exchanges. It is noteworthy that the cost of long-term contracts for raw materials began to fall from December 2016. So, on the London Stock Exchange, a ton of cocoa beans cost £1,698 thousand, and in February 2017 - already £1,558 thousand. By comparison, until September 2016, prices reached a level of £2,200 thousand for a ton of cocoa beans.
Market experts attribute a drop in prices for cocoa beans to an overabundance of raw materials in supplying countries, which, according to the forecasts of the International Cocoa Organization (ICCO), will reach 150,000 tons to 250,000 tons in 2017. At the same time, the rise in prices before the collapse in autumn 2016 was associated with political instability, as well as with drought in Ghana and Cote d'Ivoire.
“Today, the surplus of cocoa in the world market is 4.2-4.5 million tons. In the medium term, with favorable weather conditions and exceptional volumes of cocoa beans harvested in producing countries, the supply on the market will exceed demand,” said ICCO Communications Officer Arolood Kla.
Professor Johns Hopkins University (Baltimore, USA) Christopher Gilbert believes that there is no shortage in this market in the near future.
"The harvest of cocoa beans in Côte d'Ivoire this season will exceed 1.9 million tons, so it is unlikely to expect a shortage of raw materials in the market - in the medium term, prices on the London and New York exchanges will only decline," Gilbert explained.
However, the economist recalls that the internal political situation in the countries of Africa plays a significant role in the dynamics of prices for cocoa beans. Thus, the military mutiny in January 2017 and the subsequent student strike in Côte d'Ivoire led to interruptions in the delivery of raw materials and triggered a short-term price jump to £1,821 thousand per ton on the London Stock Exchange. But as soon as the situation in the region stabilized, prices again began to decline.
No time for cheap chocolate
Excess of supply over demand for cocoa beans, as well as falling prices on commodity exchanges will not have a significant impact on the cost of chocolate, says Christopher Gilbert. "In the formation of the price of products from chocolate, a big role is played by the prices for milk and sugar. Manufacturers also take into account transportation and advertising costs. Therefore, we can hardly expect a sharp drop in prices for chocolate, "the economist said.
The budget was left without a sweet
The fall in world prices for cocoa beans has caused serious damage to the economies of some African countries. The Government of Côte d'Ivoire has already announced the need to revise the budget for 2017. According to the Minister of Communications, Economics, and Science of the West African state Bruno Kone, in 2015-2016 the production of cocoa in the country fell to 1.565 million tons. For comparison: in 2014-2015 in Côte d'Ivoire 1,791 million tons were produced. The country is the world leader in the production and export of cocoa, which ensured rapid growth of the economy - in 2015, GDP growth was 8.5%. The authorities of Cote d'Ivoire announced that the collapse of prices in the cocoa market threatens the state with a budget deficit of 5% of GDP.
Ghana, the second country producing cocoa raw materials, also incurs losses, but much less than Côte d'Ivoire. Exporters from Ghana managed to get rid of surplus cocoa beans and sell them at high prices in 2016. According to Bloomberg, the harvest in Ghana in September 2016 amounted to 778,000 tons of cocoa raw materials.
