Is Cacao Running Out? Is Cacao Getting More Expensive?

In the last years, there’s been wide reporting in the media that there could be a shortage of about one million metric tons by 2020. But it’s nothing like the drastic, “We’re running out of chocolate” scare that we saw spread over the media the last years.

What I can tell you is that we are running out of chocolate, but in another way. I personally report that we see a reduction of cacao yield in the two plantations we work with in Ecuador, of about 30 percent over the last five years. This is due to pest and disease risk, and an increase in climate insecurity; we have a longer wet season, more still water, and new health risks for our farmers from mosquito-borne disease. Despite the strong demand for great quality cacao, many small producers still struggle to sell enough to earn a sustainable income. Cacao processing is in the hands of just a few players. And that is absolutely not the best interests to deal with peak climatic change that we see, the weird surplus we see in overdone bulk beans, and the tragic and difficult circumstance of farmers that are on the land.

Other People’s Cacao

What we have is rather a series of unrealistic and unnatural forces that govern how much cacao we have and how much cacao we need. These are things called the actuals market and the futures and options market.

If any of you have seen the Wolf of Wall Street, or other trading moves over the years like Boiler Room, Trading Places, or Wall Street, you will have a good idea of the strange and bizarre life that bankers lead – trading paper for unrealistic commodities. And the role of a human being with a family and livelihood is not calculated into the plot. As for Mother Nature, she’s certainly not a stakeholder in this formula.

Three Types of Ways to Trade Cacao

There are three types of trade.

One is the direct trade, where I give you 100 cacao beans and you give me a chicken.

The other one is the actuals market, that’s when we have a standard contract for sale to maybe sell you my cacao in the future. We agree on a price, have a contract for sale and we have a third party place to go resolve our disputes. Eventually I get my chicken months after our agreement and usually at a low price, whatever ‘market price’ seems to be at that time.

The last type of market where you can trade cacao is called futures and options. Typically, in this market, there is no physical exchange of cacao that will even change hands. It’s managed in paper by the London International Financials Futures Option Exchange, and the New York Board of Trade, which is now called the Intercontinental Exchange.

And if you would like to learn more about this, I will happily tell you at one of my live events. And if you want to hear my opinion of it, buy me a glass of wine and we will be there the whole night.

Did Someone Say Fair?

The fair trade piece for cacao is typically around $2 per kilo. In my own small experience, to run 80 to 100 hectares of cacao – sustainably, economically, and environmentally fit – it is at least $9-10 per kilo. We often exceed 14 EU per kilo as we start to factor in social development programs like education, and health care into basic cacao development costs.

I personally believe that to be responsible for education and health care is part of agro-ecology.  We are a social enterprise and I am extremely proud to be spending 23 percent of our wholesale costs on earth care, 21 percent on social and people care, 23 percent on regulation, and 33 percent on business operations.

So, where is the money going in the bar of chocolate you’re probably holding in your hand right now? About 20 percent of costs go on forest and pre-forest environmental care, and about another 20 percent on people. The rest of it we’re using for R&D, shipping, stamps and regulation. I think you should be asking your favourite chocolate company about their prices, and how does that translate to the farm, the ecology, the people and regulation.

Who Buys What?

The majority of market share of the global cacao grindings is pretty much taken up by Europe and the Americas, which is buying up about between 70 and 80-percent of the world’s purchase of cacao. Imports are typically divided by cacao butter, cacao powder and mass.

The largest buyers for cacao butter in the last years have been Germany, the United States, Netherlands, and Belgium. In cacao paste, or mass, it’s Germany, France, Netherlands, and Belgium. The United States, China, Canada, Russia, and the United Kingdom sit well underneath these European giants in how much is being imported to those countries.

You will find typically a lot of cacao butter being bought for cosmetics these days. And the cacao mass is still being used for conventional covertures’ chocolate, truffle, and chocolate bar making.

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