Climate Woes Push Coffee and Cacoa Prices to Record Highs
It's been a tough year for both coffee and cacao farmers. Although production takes place in different regions, both have been severely impacted by unfavorable weather conditions, hindering crop growth. As a result, both commodities are now trading at all-time highs. But the question remains—will these price levels persist?
Cacoa – A chocolate crisis?
The prices of cocoa have dramatically increased in the past year, reaching a peak of around 10,000 USD/ton, which is almost a 2x multiple from where it was a year ago. As a result, many call the price surge a “chocolate crisis,” as it is a core ingredient in chocolate. The reason for the surge is a combination of rising demand and a decrease in supply. Supply has been affected by climate change, plant diseases, and a long-term decline in investment in the crop.
Since the majority of the production of cocoa comes from West Africa, it is particularly sensitive to supply chain disruptions. West Africa has been heavily hit by these issues, for example, by irregular rain patterns and rising temperatures causing unfavorable conditions for the crops to grow. Additionally, the cacao farmers, who usually work with scarce resources, find it difficult to tackle these conditions.
Due to the troublesome circumstances for cocoa, reserves have reached historically low levels, and the effects are passed on to chocolate producers who ultimately raise prices for consumers. Yet, some producers are adjusting their recipes to use other ingredients to pad the list, saving on cacao and keeping prices steady. However, this price illusion is similar to what many companies decided to do during the high inflationary period, namely reducing package sizes to keep the “same” price for the customer. In other words, this means that producers are adjusting the contents of the chocolate to keep the same prices, which means you do not receive the same quality as you did before.
According to experts, prices of cocoa are set to continue to increase in the future, and the effects will be noticeable for all involved in the product cycle. As the fundamental reasons for the price surge are a changing climate and plant diseases, it is essential for investment to take place to develop a more robust production.
Coffee – Similar Woes…
Unfortunately, coffee has followed the same fate as cocoa. Due to drought in mainly Brazil and Vietnam, the two largest producers in the world, prices have increased. Together, the two countries account for around 50-60% of the world's coffee production, although they are famous for two different types of beans. Brazil is known for the bean called Arabica, used in espressos, while Vietnam is known for their Robusta coffee, used in instant coffee.
The demand for coffee is ever so large and has increased at a rapid pace, meaning suppliers are struggling to keep up. While coffee makers have been resilient, prices are going up, which will make consumers feel the hit. Today coffee trades at around 315 USD/Lbs meaning that it has surpassed the previous high levels of the 1970s and the cause for the spike is yet again the same: drought and heavy rain.
Since producers are trying to maintain market share, prices in stores have yet to increase as much as they should have at this point. However, concerns remain for the 2025 crop and the effects of the unfavorable weather conditions. Since coffee inventories are decreasing, higher prices should be expected for 2025.
According to experts, the only way for coffee prices to decline would be by replenishing stocks, and that process may take years as crops need to recover. Thus, it can be expected that our favorite morning beverage will remain pricey for the foreseeable future.
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