- Retail chocolate prices in the United States rose 10% last year, three times the rate of inflation.
- Prices may continue to rise due to tight global supply of cocoa, the main ingredient in chocolate.
- Hershey Co., the largest U.S. chocolate maker, plans to lay off workers amid falling profits.
If your loved one is expecting chocolate this Valentine's Day, celebrating may not be so sweet on your wallet.
The price of cocoa, the main ingredient in chocolate, more than doubled last year and rose more than 40% last month alone, reaching all-time highs.
Chocolate makers in the United States, where Americans consume about nine and a half pounds of chocolate per person annually, have swallowed up some of the increase. But not all.
U.S. retail chocolate prices rose 10% in 2023, about three times the rate of consumer inflation, and that was before cocoa prices continued to rise after the start of the year.
The cocoa wave
Adverse weather and tree diseases in West Africa, which produces about two-thirds of the world's cocoa, have decimated production in Ivory Coast and Ghana, the world's two largest producers of cocoa beans. Chocolate makers grind cocoa beans to make liquor and butter that are used in product formulations.
Cocoa futures for March delivery on the Intercontinental Exchange in New York and London closed Friday at $5,888 per metric ton, the latest in a series of all-time highs.
A year ago, cocoa was trading at around $2,600 per metric ton; Just a month ago, prices were around $4,000-$4,200 per metric ton.
Meanwhile, prices of sugar, the other key ingredient in chocolate, also rose by around 25% last year.
Some analysts project the global cocoa supply shortage will extend into its fourth year in 2025 amid growing forecasts that El Niño patterns will dominate the global climate.
Persistent winds that have dried out cocoa trees in West Africa caused Ivory Coast farmers to ship 36% less cocoa to ports on Africa's west coast in the four months ended Jan. 28 than in the same period. period of the previous year.
Similarly, cocoa inventories at US ports fell to nearly their lowest level in three years in January, and US chocolate makers processed 3% fewer cocoa beans in the fourth quarter than in the same period last year. last year.
The lower shipments, inventories and processing are consistent with data from the International Cocoa Organization, which estimates that global supply fell short of demand by 99,000 metric tons in the 2022/23 marketing year.
In its latest monthly market report, the organization stated that the current 2023/24 marketing campaign “is also heading towards an imminent deficit.”
In the United States, which consumes about a quarter of the world's chocolate, producers and marketers have felt the impact on costs, even after passing some of it on to consumers.
Hershey Co. (HSY), the largest U.S. chocolate maker, said last week that its fourth-quarter earnings fell 11.5% from a year earlier. Although net sales increased marginally to $2.66 billion, the company's operating margin fell 240 basis points to 17.5%, reflecting higher costs.
Michele Buck, Hershey's CEO, said rising cocoa prices will continue to limit the company's profit growth in 2024. The company announced plans to cut up to 5% of its workforce as part of a strategy to cut $300 million in annual spending.
Buck declined to say whether the company would raise chocolate prices in the future. But he certainly left the possibility open.
“Given the state of cocoa prices, we will use all the tools at our disposal, including pricing, as a way to manage the business,” he said.