Market Analysis – 70141506 – Cocoa production

Executive Summary

The global cocoa production market, valued at est. $14.85 billion in 2023, is experiencing unprecedented volatility. While long-term demand projects a moderate 3.8% CAGR through 2028, the market is currently defined by a severe supply-side crisis, with prices more than tripling in the last 18 months. This is driven by poor harvests in West Africa, disease, and structural underinvestment. The single greatest threat to our supply chain is the extreme price volatility and supply insecurity stemming from geographic concentration and climate change impacts, necessitating immediate diversification and risk mitigation strategies.

Market Size & Growth

The global market for raw cocoa bean production is projected to grow steadily, driven by consistent demand from the confectionery, food & beverage, and cosmetics industries. The current market size is estimated at $14.85 billion and is forecast to reach est. $17.8 billion by 2028. However, this growth projection is subject to significant revision based on the ongoing supply crisis. The three largest cocoa-producing markets are Côte d'Ivoire (est. 38% of global supply), Ghana (est. 15%), and Ecuador (est. 9%).

[Source - Mordor Intelligence, Feb 2024]

Key Drivers & Constraints

1. Concentrated Supply & Climate Vulnerability: Over 60% of global supply originates from Côte d'Ivoire and Ghana. This region is highly susceptible to adverse weather (El Niño), pests, and disease (swollen shoot virus), creating a systemic supply risk. Recent poor harvests are the primary driver of the current price crisis.
2. Rising Demand for Premium & Sustainable Products: Consumer demand is shifting towards high-cacao content, single-origin, and ethically sourced chocolate. This trend offers margin opportunities but requires enhanced traceability and certification (e.g., Fair Trade, Rainforest Alliance), adding complexity and cost.
3. Stringent Regulatory Scrutiny: The EU Deforestation-free Regulation (EUDR), effective Dec 2024, mandates that commodities sold in the EU are not linked to deforestation. This requires GPS-based, farm-level traceability, a significant operational hurdle for supply chains lacking transparency. Similar legislation is being considered in the UK and US.
4. Aging Farms & Low Farmer Income: The average cocoa tree is past its peak productivity, and low historical prices have disincentivized replanting and farm investment. This structural issue constrains long-term yield potential and threatens the livelihood of millions of smallholder farmers.
5. Input Cost Inflation: The cost of essential inputs like fertilizer and pesticides has remained elevated, squeezing farmer margins and impacting crop health and yield.

Competitive Landscape

The "production" of cocoa is highly fragmented among an estimated 5-6 million smallholder farmers. However, the market is controlled by a small number of large trading and processing companies.

⮕ Tier 1 Leaders * Barry Callebaut: World's largest B2B chocolate and cocoa products manufacturer, offering extensive innovation centers and sustainability programs. * Cargill Cocoa & Chocolate: A dominant force in the supply chain with global processing assets and deep integration from sourcing to product formulation. * Olam Food Ingredients (ofi): Major supplier with a strong focus on traceability and sustainability, offering differentiated products through its "Cocoa Compass" program.

⮕ Emerging/Niche Players * Touton S.A.: French-based trader with a strong West African footprint and growing focus on certified and traceable cocoa. * ECOM Agroindustrial Corp.: Global commodity merchant with deep roots in cocoa-producing regions, offering sustainable sourcing solutions. * Original Beans / Uncommon Cacao: Niche players focused on ultra-premium, single-origin, and direct-trade models, setting benchmarks for traceability and farmer equity.

Barriers to Entry: High for processing (capital intensity, economies of scale) and trading (risk management, logistics networks). Low for farming itself, but achieving scale and market access is a significant hurdle.

Pricing Mechanics

Cocoa pricing is a complex build-up. It begins with the farmgate price, often set by national governments in West Africa (e.g., Le Conseil du Café-Cacao in Côte d'Ivoire). To this, exporters add costs for transport, bagging, quality control, export duties, and their own margin. The global benchmark is set by futures contracts on the Intercontinental Exchange (ICE) in New York and London. The final landed cost for a buyer includes the futures price, a "differential" (premium or discount for quality and origin), freight, and insurance.

This structure is subject to extreme volatility. The three most volatile elements recently have been: 1. Cocoa Futures (NY-ICE): The benchmark price has surged from ~$3,000/metric ton to over $10,000/metric ton in the last 12 months (>230% increase), driven by supply shortage fears. 2. Origin Differentials: Premiums for physical cocoa from specific origins have become highly erratic as buyers scramble to secure any available volume, with some differentials increasing by 50-100%. 3. Freight & Logistics: While ocean freight has stabilized from post-pandemic highs, localized transport costs within West Africa have risen due to fuel prices and infrastructure challenges, adding est. 5-10% to in-country costs.

Recent Trends & Innovation

• Mandatory Traceability (June 2023): The EU passed its Deforestation-free Regulation (EUDR), requiring companies to provide geolocation data for the specific plots of land where commodities were grown. This is forcing major investment in GPS mapping and data management systems across the industry.
• Genomic & Agronomic R&D (Ongoing): Research institutes and major suppliers are accelerating efforts to develop and distribute higher-yield, climate-resilient cocoa varietals that are resistant to drought and diseases like swollen shoot virus and frosty pod rot.
• Price Crisis Spurs Hedging Failures (Q1 2024): The unprecedented price rally has caused significant financial distress for some traders and processors who were caught in short positions or unable to finance margin calls, leading to fears of contract defaults.
• Latin American Supply Expansion (2023-2024): In response to West African shortfalls, buyers are increasingly looking to Ecuador, Brazil, and Peru. Ecuador is on track to overtake Ghana as the #2 producer, offering a key diversification opportunity.

Supplier Landscape

Regional Focus: North Carolina (USA)

North Carolina is not a cocoa-producing region due to its temperate climate. However, it is a strategically important demand and processing hub. The state's appeal is driven by its robust manufacturing infrastructure, competitive utility costs, and excellent logistics, including the deep-water Port of Wilmington, which can handle containerized cocoa imports. Major processors like Cargill operate significant cocoa and chocolate processing facilities in the state (e.g., Garner, NC). The demand outlook is stable, tied to the broader US food manufacturing sector. The primary local considerations are skilled labor availability for manufacturing, state-level business tax incentives, and logistics efficiency.

Risk Outlook

Actionable Sourcing Recommendations

1. Diversify Origin to Latin America. Immediately engage suppliers to qualify and secure volumes from Ecuador and Brazil. Target a 15-20% portfolio shift to non-African origins within 18 months. This mitigates risk from the West African duopoly, reduces exposure to swollen shoot virus, and provides access to a growing supply of fine-flavor and certified beans, addressing the high-graded Supply and Geopolitical risks.

2. Mandate EUDR-Compliant Traceability. Require all strategic suppliers to provide farm-level geolocation data for 100% of sourced volume by Q4 2024. This preempts regulatory risk beyond the EU, enhances ESG credentials, and provides the data needed for targeted sustainability investments. Prioritize suppliers like ofi or Cargill who have established digital traceability platforms, de-risking implementation and ensuring supply continuity.