Cocoa futures skyrocket due to West African shortfall

Cocoa futures have surged to record-breaking US$12,800 per metric ton recently. What’s fuelling this unprecedented spike?

Get ready for a bittersweet reality: chocolate lovers. The price of your favourite chocolate treat is about to take a bite out of your wallet. Cocoa futures, which are contracts predicting future prices, have skyrocketed in recent months to a record-breaking US$12,800 per metric ton. This surge is largely due to a confluence of factors wreaking havoc on cocoa production in West Africa, the world’s dominant producer.

For decades, West Africa, particularly Côte d’Ivoire and Ghana, has been the chocolate kings, supplying 60 percent of the world’s cocoa output. However, their reign is facing some serious challenges. The first culprit is unfavourable weather. Due to unpredictable rainfall patterns and extreme temperatures have stressed cocoa trees, leading to lower yields and even crop failure in some areas. These extremes are likely due to climate change, a trend expected to worsen in the coming years.

Secondly, a devastating tree disease known as cocoa swollen shoot virus (CSSV) is spreading like wildfire through West African plantations. This virus weakens and stunts cocoa trees, ultimately leading to their death. The virus is transmitted by mealybugs, which feed on the leaves, buds, and flowers of the trees. Farmers are struggling to contain the outbreak, further diminishing their output. This outbreak is having devastating effects on farmers in West Africa where thousands of cocoa farmers earn just $1 per day.

What is causing this virus?
Rising temperatures and erratic rainfall are becoming the norm, disrupting traditional growing seasons and creating ideal conditions for diseases like CSSV to thrive. Additionally, decades of intensive cocoa farming practices may have depleted the soil’s nutrients, making trees more susceptible to disease. The impact of these challenges is undeniable. So, as the world faces a global cocoa shortage, it has pushed futures prices higher and higher. This will inevitably trickle down to consumers, with chocolate manufacturers forced to raise prices to maintain their profit margins. So, buckle up for potentially high prices for chocolate bars and cocoa treats in the near future.

Are there any hopes? Yes!
The only cure for CSSVD is to cut out visibly infected trees and the government eradication campaign in Ghana has cut out more than 200 million trees since 1946 to try and stop the disease from spreading (Dzahini-Obiatey, H, Akumfi Ameyaw, G, Ollennu, L. A 2006). Scientists have been trying to fight CSSV for decades, mainly focusing on creating disease-resistant cocoa plants and weakening the virus itself by using a milder version, and trying to control the mealybug that spreads the disease.

Some researchers have explored using regenerative practices such as growing other plants alongside cocoa trees for shade or as a barrier but this has not been studied much. Even though these methods show promising results. Studies comparing these methods show that traditional approaches such as breeding resistant plants or using a mild strain of the virus may only reduce infections by 30 percent. However, growing other trees alongside cocoa trees seems much more effective with studies suggesting that “potential of diversification measures (shading/agroforestry and barrier (strip) cropping) seems to be considerably higher (40 and 85 percent, respectively),” (Andres, C, Gattinger, A, Dzahini-Obiatey, H. K, Blaser, W. J, Offei, S. K, Six, J 2017). Agroforestry is not simply about farming practices but it combines respect for nature with productive agriculture. It encourages sustainable land use, forest conservation, and restoration of degraded land due to intensive cocoa production (Damala, H 2022).

Commodities Insights
Given the surge in the prices of cocoa futures as a result of the drop in supply, it is imperative for commodity traders to keep track of supply chains and forecast shortfalls in production. The use of Earth Observation data can help traders keep track of agricultural commodities right from the farm. Through the tracking of cocoa production regions, for example, and yield prediction from satellite data, it is possible for traders and others to predict production shortfalls and attendant rises in cocoa futures prices. The adoption of satellite-based tools to better understand ecological conditions across farmlands and how these impact supply is one of the ways businesses can manage risks more effectively whether that be from crop disease, climate change or other factors. The digital measurement, reporting, and verification (dMRV) solutions developed by Shamba Network are a great example of the tools available to market players in this regard.

Conclusion
As the cocoa swollen shoot virus continues to negatively affect farmers in West Africa, governments in the regions and different stakeholders should engage to improve the sector, farmers livelihoods, and create awareness. There is certainly a need to improve farmers’ compensation, offer affordable insurance and incentivising farmers to adopt regenerative practices to increase their diversification measures. As the future of chocolate remains uncertain, one thing is clear: the world’s demand on sweets is putting a strain on cocoa production.

Data source: Business Insider

About the author
Atak Ngor

END…