The Pandemic’s Impact on the Chocolate Industry

Cocoa Prices Plunge

The price of cocoa beans has tumbled during the ongoing COVID-19 pandemic. Normally, changes in supply cause fluctuations in the commodity’s price, but the pandemic has taken a bite out of demand for chocolate. Though some consumers have turned to chocolate as a comfort food during shutdowns, this has not made up for the sharp decline in chocolate sales at airports, restaurants, and other retail outlets.

The total amount of cocoa processed by the industry dropped by 8.2% in the second quarter—the most significant year-over-year downturn since 2014. The New York benchmark for cocoa beans has dropped by nearly 25% since February, and in July it hit a low of $2,150 per metric ton. While prices have gained some ground in recent weeks, investors are still betting against the commodity.

The Impact on Farmers

The price drop is hitting cocoa farmers hard. In Ivory Coast and Ghana, two countries which together produce about 60% of the world’s cocoa, farmers are waiting to sell their fall crops. Ordinarily, most farmers sell their crops in the summer before the October harvest, but they are holding off this year in hopes that prices will recover.

In addition to dealing with low prices, farmers are also dealing with a labor shortage. Since their borders have been closed due to the pandemic, cocoa farms have not been able to hire foreign workers.

Last year, the governments of Ghana and Ivory Coast formed a partnership that politicians called “Copec,” as a way to use their market share to charge higher prices for cocoa. The goal was to filter more money to farmers and reduce child labor, but some industry leaders fear this extra money is not reaching farmers, and is instead contributing to the slump in demand for the commodity. Ivory Coast and Ghana have elections coming up in October and December, respectively, which cocoa investors will be carefully watching.

Hershey’s Looks Ahead

Chocolate makers expect a bittersweet end to the year. Analysts at Hershey’s (HSY) predict that far fewer people will trick-or-treat this fall, which will take a toll on chocolate sales. Normally the holiday accounts for 10% of Hershey’s annual revenue, so the company plans to make fewer Halloween-themed treats this year to avoid a glut in supply.

The winter holidays, on the other hand, will likely not be as heavily impacted. Even during normal years, most of the candy people buy for these celebrations is eaten at home. Hershey’s reported that its Easter sales were better than some anticipated, even though the holiday fell when most of the US was under lockdown.

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