In the current era of high inflation, consumers have gotten used to sharp increases in the price of everything from cars to shelter. But the latest bittersweet twist in the story is unfolding now as the cost of chocolate is skyrocketing — and everyone from Big Chocolate to the Easter Bunny are feeling the bite.

This week, cocoa futures in New York eclipsed the US$10,000 per metric tonne mark, a record-high. The last time cocoa futures were above even $5,000 was 46 years ago. The skyrocketing price of cocoa this year has even outpaced that of stock market darling Nvidia.

It’s happening because of a complex interplay of factors, mostly supply constraints in West Africa. But a quadrupling of prices in under a year has fundamentally shifted the dynamics of the market, as buyers and sellers move from orderly trading to a more frenzied scramble to secure supply.

“This is not a speculative bubble that can burst from a shift in market sentiment,” said Judith Ganes, president of JGanes Consulting, a commodity advisory services firm. “Buyers are scrambling to secure supplies… be it beans, cake, butter, or powder to assure that they have sufficient supply on hand to meet needs.”

Supply problems

West Africa, the powerhouse of global cocoa production, is grappling with a series of agricultural setbacks. At a time when global demand for cocoa is intensifying, crop failures, aging plantations, and disease have precipitated the most significant supply deficit in over six decades, steering the world towards a third consecutive year of supply shortfall.

Record price hikes have ensued from adverse weather conditions and diseases impacting African cocoa production, prompting a rush to secure existing supplies. The appetite for new supply is strong, but forthcoming harvests from Côte d'Ivoire and Ghana are not expected to be enough to make a dent.

Côte d'Ivoire’s so-called mid-crop, commencing in April, is predicted to fall short of last year’s output; and Ghana's mid-crop, starting in the summer, is expected to produce less than expected previously. Both developments are a recipe for the cocoa market to remain wildly out of whack.

The two countries are amongst the largest producers in the world and in both, prices are strictly regulated by the government — which presents an enduring challenge for cultivators. Price caps limit compensation for farmers, which makes it difficult for them to invest in modernizing their operations to increase quality or quantity. In Côte d'Ivoire, farmers are only paid one million West African francs (about US$1,644) per metric ton of cocoa, roughly one-sixth of the price at which New York futures are currently trading.

“It’s been spectacular,” said Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University in Halifax. “I’ve been following commodities for 25 years and I’ve never seen such a rally.”

Confectionery giants are trying to navigate this inflationary pressure through price adjustments and supply chain innovations to keep up with consumer demand while maintaining profitability

Major players including Switzerland's Nestle, Mondelez International Inc. (maker of Cadbury and Milka chocolates), and Barry Callebaut AG, the globe's leading supplier of bulk chocolate, have all been forward-buying whatever supply they can get their hands on, Charlebois said.

Despite high prices for chocolate, stock valuations for all three have been under pressure this year. And on Tuesday, Hershey Co. saw its rating downgraded to neutral from outperform by BNP Paribas Exane, attributed to the sharp increase in cocoa prices.

It’s not just the major industry players feeling the pinch, as consumer prices have risen in some categories by 30 per cent this year, Charlebois said, adding that he doesn’t see any relief on the horizon.

“If I were … going out and buying chocolate, I’d think about Mother’s Day as well,” he told BNN Bloomberg Thursday. “My guess is prices by then will increase as well.”