You may have recently seen headlines about the unprecedented surge in cocoa prices. This is a complex situation with no clear resolution in sight, but we at Trade Aid want to share our perspective on what is happening and its implications for our trading partners and for you.
Trade Aid has nurtured long-lasting partnerships since our journey began over 50 years ago. Throughout this time, we have never encountered such an extreme market crisis. The current spike in cocoa prices, which soared to nearly $12,000 per metric ton (MT) earlier this year, is unprecedented and up around 4x what they were this time last year. Although prices have since stabilised between $7,000 and $8,000 per MT, they remain significantly higher than historical averages, presenting substantial challenges for all involved.
Factors Driving Price Increases
Cocoa beans, like other commodities, are subject to the fluctuations of the free market, driven by supply and demand. Over 70% of the world’s cocoa is produced in West Africa, primarily in Ivory Coast and Ghana. Recent harvests in these regions have been severely impacted by disease and adverse weather conditions, exacerbated by climate change. This has resulted consecutive years of poor harvests causing supply deficits, straining the market, affecting livelihoods and driving up prices.
Images sourced from Plantwise Knowledge Bank.
Another significant factor affecting cocoa prices is the disruption in global shipping routes. The conflict involving Houthi rebels has made shipping through the Red Sea perilous. As a result, many shipments now have to bypass this route, extending their journey around the Cape of Good Hope. This detour not only delays shipments but also increases transportation costs, further inflating landed cocoa prices and adding strain to the supply chain.
Anticipating continued low supplies, speculators have driven prices even higher, creating a volatile market environment. The commodity market for cocoa operates on a global scale, influenced by various factors such as geopolitical events, economic trends, and speculative trading. The recent surge in prices is not only a result of supply shortages but also this heightened speculation. Traders and investors, predicting further disruptions in supply, have driven up prices through futures contracts, where they bet on the future price of cocoa.
This speculative behaviour creates a feedback loop, where high prices lead to more speculative trading, further driving up prices. Additionally, the interconnected nature of global markets means that fluctuations in one region can have widespread impacts. For instance, poor harvests in West Africa can lead to price spikes that affect producers and consumers worldwide.
1 Year Cocoa Futures in US Dollars per Metric Ton, showing the unprecedented surge in prices.
Trade Aid sources its cocoa from the Dominican Republic and Peru. Although the situation in these regions is more favourable, the low yields in West Africa and volatile market conditions have had a flow on affect to our trading partners and the price we pay for fair trade, organic cocoa.
But…doesn’t Trade Aid operate beyond conventional market boundaries?
Yes and no. Since cacao is a commodity crop, Trade Aid and our partners are influenced by market fluctuations. However, our cocoa cooperative partners are always guaranteed a fair trade minimum price, supplemented by additional fair trade and organic premiums.
Our partners usually earn well above the future markets price. Currently, market prices are significantly higher than historical commodity rates, averaging at two to three times more than what we have paid in the past (including the fair trade and organic premiums). As our trading partners receive premiums on top of the market prices, fair trade and organic cocoa beans now cost more.
Resilience Through Organic Farming
One of the key strengths of organic farmers is their use of bio-diverse farming techniques. Organic farming practices focus on sustainable and regenerative agriculture, which enhances soil health and reduces vulnerability to pests and diseases. By avoiding synthetic fertilisers and pesticides, organic farmers maintain biodiversity and create resilient ecosystems that can better withstand extreme weather events.
Fair trade farmers, particularly those in our partner cooperatives, have leveraged these organic techniques to keep their harvests relatively stable despite the challenges posed by climate change. While West African cocoa production has seen a significant drop, with some areas experiencing up to a 40% decline in yields, organic cocoa supplies have not experienced the same impact.
 
Images sourced from pronatec.comÂ
Impact on Farmers and Communities
Despite the high market prices, many farmers, particularly in Ivory Coast and Ghana, are not reaping the full benefits. Government-set farmgate prices in these countries were established before the price surge, meaning that many farmers are still earning less than the current market rates. While there have been some adjustments, these prices remain below market levels, compounded by lower yields due to poor harvest conditions.
The challenges faced by farmers in Ivory Coast and Ghana are further compounded by systemic issues. Historically low market prices have left many farmers without the necessary resources to invest in their farms. This lack of investment has resulted in poor farm maintenance, reduced yields, and a greater vulnerability to adverse weather conditions and diseases. Consequently, when prices do rise, farmers are unable to fully capitalize on these increases due to their lower production volumes.
The economic pressures have forced many farmers into a dire situation. Without sufficient funds to pay for adequate labour, farmers often rely on children and other unpaid workers to help with the harvest. This creates a vicious cycle of poverty and exploitation, perpetuating the use of child labour and making it difficult to break free from these conditions. The lack of resources and support means that these farmers and their communities continue to face significant challenges, further entrenching the cycle of poverty and exploitation.
In contrast, farmers in other regions, such as the Dominican Republic and Peru (where we source most of cocoa), are experiencing a more favourable situation. With current market prices exceeding $9,000 per MT in some cases, these farmers are seeing higher earnings. The resilience afforded by organic farming practices has allowed them to maintain strong harvests even in the face of global supply shortages. However, the volatility of prices presents challenges for cooperatives who collect and sell the beans to buyers like us. Having money for payment to farmers was not as much of an issue when market prices were lower, but now those cooperatives are having a harder time coming up with the large amounts of cash needed up-front to pay farmers for their beans. They must juggle paying farmers promptly while also managing the financial risks of holding high-value beans.
The high prices have also increased security risks, as cocoa becomes a highly valuable commodity. Reports of theft from farms and collection centres have surged, adding another layer of difficulty for farmers and cooperatives. In response, cooperatives are working hard to ensure quick payments to farmers and to reinforce the value they provide beyond price, such as post-harvest processing, bean transportation, and community services like reinvestment in infrastructure, schools, and healthcare.
Implications for Consumers
The rise in cocoa prices affects the entire supply chain, from producers to drinking chocolate consumers. As costs increase, consumers can expect to see higher prices for their favourite cocoa products. Trade Aid remains committed to delivering high-quality, fair trade and organic products that support small-scale farmers and cooperatives.
Despite the challenges, our long-standing relationships with our partners position us well to navigate these turbulent times. We are committed to supporting our trading partners and ensuring that our customers continue to receive the best products.
Join Us in Supporting Fair Trade
Support fair trade and sustainable practices by choosing our products. Your purchases help empower small-scale farmers, promote sustainable farming, and contribute to the economic stability of communities worldwide. Together, we can create a more equitable and sustainable cocoa market.
