Cocoa prices rally on slowing West Africa exports

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00:00Cocoa prices surged in 2024 and was the best-performing commodity for the year.

00:07This was driven by concerns over poor weather conditions in West Africa as bean volumes

00:12at export facilities fell below the five-year average.

00:15As a result, chocolate makers are increasingly turning their attention to alternatives like

00:21lab-grown cocoa, while some are seeking approval to buy huge amounts of beans on the IC Futures

00:27Exchange.

00:28Ted George, Chief Narrative Officer at Kiosk Advisory, joins me to discuss the wider implications

00:33for the cocoa industry this year.

00:35Ted, thank you for joining us and happy new year to you.

00:39Happy new year as well.

00:40It's good to be back.

00:41All right, let's get right to it.

00:42You and I had several conversations last year on the cocoa market and some of the highlights

00:46were, of course, adverse weather conditions, we had a bean disease, of course, and of course

00:50we had challenges with the cocoa board in Ivory Coast and of course Ghana, a myriad

00:55of problems that we saw, of course, prices surging in 2024.

00:59So let's start with 2025.

01:01It looks like some key players like chocolate makers are already trying to take some steps

01:07to hedge against any potential supply disruptions this year.

01:12What are your highlights?

01:13What do you see ahead?

01:14Yeah, absolutely.

01:15I mean, I think the thing is prices are still eye-wateringly high.

01:19We saw in April last year they went over £10,000 sterling a tonne.

01:23That's the first time that ever happened.

01:26And that translated into cocoa being one of the best commodity performers in the year,

01:30because in November there were fresh worries about supplies.

01:32We saw prices go up to almost £10,000.

01:35And even though they have weakened a bit, they're probably around £8,700 at the moment.

01:39That is two to three times where they were 18 months or two years ago.

01:43So it makes sense that a lot of the chocolate producers and the traders in the middle as

01:47well, they're trying to find alternatives to cocoa or ways of using less cocoa in chocolate.

01:53And so I think the thing is that we are going to still see chocolate there on the shelves.

01:56It might be a bit more expensive, but they're looking at also using other replacements for

02:00cocoa butter.

02:01There's quite a few other things that you can use as well.

02:03Less cocoa in there, maybe even trying to source actually a lot more from Latin America

02:07and some of the big producers there like Ecuador.

02:10Right.

02:11Speaking about those other producers, because I saw a report from the World Bank saying

02:15that cocoa prices are projected to ease by approximately 13% this year.

02:21And they mentioned the fact that there will be additional entrants and new entrants into

02:24the market to sort of cushion the effect of any supply disruptions coming from West Africa.

02:30What are your thoughts on that?

02:31Well, I mean, we all hope that prices will come down.

02:3413% is a fair amount, but considering how high they are, it means they're still going

02:38to be very high.

02:39I think the problem is that I just finished a series of missions to West Africa, the four

02:44largest countries there as well, and it was not possible to see the whole cocoa sector.

02:48It's pretty clear from what everyone says that the crop is as good as last season or

02:53maybe slightly better.

02:54But last season was disastrous in Ghana and Cote d'Ivoire.

02:57And so this strong rebound that everyone expected isn't happening.

03:01There are some areas where there's good cocoa production, but it's going out of the country

03:04so fast because there's so much demand.

03:07So I think the reality is, even though it looks like it has been a better season than

03:10last so far, ultimately, there's such a demand for cocoa and we're nowhere near what we were

03:15producing a few years ago, we're going to see prices remaining high.

03:18And even if they are 10%, 20% lower as we go into the rest of this year, that's still

03:23more than double where they were only a short while ago.

03:26How concerned should we be for weather conditions this year for the crop?

03:31Well, we have the second part of the double whammy.

03:34We had El Niño, which is that weather event which affects weather patterns around the

03:38world that had huge impacts, particularly on West Africa, Southern Africa as well.

03:42We've now switched back into La Niña, which has in some ways the opposite effects.

03:46And in fact, one of them is causing incredibly strong winds in California, which have really

03:50fanned that disastrous fires in Los Angeles.

03:53But what it tends to mean for West Africa is more rain.

03:57That can be good.

03:58But if you get too much rain for things like cocoa, you get black pod disease.

04:01It's great for Southern Africa.

04:02They produce huge amounts of maize there.

04:04That could be good for the crop, but it tends to be dry in East Africa.

04:08So we could find fresh drought there.

04:09I think the basic point is with climate change, and we've just seen that the world last year

04:13for the first time ever, on average, was over 1.5 degrees, which was the point we shouldn't

04:18get above.

04:19I think essentially there's so much unknown out there, all we know is that La Niña is

04:23going to cause disruption.

04:24But what we get from the weather, it just means that's overhanging all of the soft commodity

04:28sector at the moment.

04:29Right.

04:30And because of this unknown, this big unknown, like we mentioned earlier, some are cocoa

04:35chocolate makers.

04:36I'd like to talk about that.

04:38Some are seeking permission to purchase significant amounts of cocoa beans on IC Futures.

04:44Let's paint a scenario here.

04:46What happens if they're able to do that?

04:48Well, I mean, they can on certain levels.

04:50It's just that very often when it comes to the big chocolate manufacturers, they actually

04:54outsource a lot of this to the trading houses who sit in the middle.

04:57Enormous companies like Barry Cai, Bo, Cargill, Olam, that most people have never heard of,

05:01and they handle billions of dollars of cocoa every single year.

05:04They often do the hedging for them.

05:06So this project that I'm involved in for the ICCO is to set up an Africa cocoa exchange.

05:11And our idea is we want the cocoa to be traded in Africa.

05:14You can get African prices and the ability to hedge as well, which is so important with

05:18the different products that can come from that as well.

05:20The potential for futures as well.

05:22So I think basically when all of the different market out there is trying to find ways to

05:27reduce the risk.

05:28But I think actually, if you look at the big chocolate companies in the trading houses,

05:31the way they're trying to do it is actually build a relationship with the farmer.

05:35They want to make sure that when the farmer does produce the beans, they sell it to them

05:38and not on the open market.

05:40And everyone is making that effort to really make a connection with the farmer and the

05:43cooperative.

05:44Well, some are looking at the prospect of lab-grown cocoa.

05:48How do you feel about that, and how feasible is this?

05:51Well, I mean, if you think, what does it mean, lab-grown cocoa?

05:54Are you saying, oh, they're going to try and develop new varieties, et cetera?

05:57Great.

05:58That could work.

05:59But you need it at plantation scale.

06:00You know, the size that you would need if you need to produce, let's say, another million

06:04tons.

06:05You need hectares and hectares and hectares.

06:06So I think everything about looking at new varieties, hybrids, accidentally it was discovered

06:12in Israel because they had to evacuate an area.

06:14They left some cocoa trees extremely dry.

06:16And the ones that actually survived, they realized, are drought-resistant.

06:19So there's a whole series of different varieties that can come in, better husbandry, use of

06:23biopesticide and not vicious chemicals.

06:27All of that can help, ultimately.

06:29But it comes from the plantation.

06:30That's where we're going to get the cocoa and from the millions of farmers who depend

06:33on it.

06:34Speaking about plantation and farmers, last year in places like, I think, between Ghana

06:38and Cote d'Ivoire, a lot of the land were repurposed for illegal mining.

06:44I think that will be in Ghana.

06:45I mean, talk to us about what you're hearing on the ground in terms of how the government

06:50plans to support.

06:51I know you've talked about the African Cocoa Exchange and the support to farmers, but very

06:56crucial for new beans and new plantations to spring up to help support the production

07:03of cocoa.

07:04Well, absolutely.

07:05An illegal goldmine, or galamsey, as it's called in Ghana, is a real problem.

07:10Certain regions have been devastated, because when you go in to try and get the gold, which

07:14is underneath, you basically wash away all the soil and you use things like mercury to

07:17extract it.

07:18So the whole soil is destroyed.

07:20It cannot be used for any agriculture, and particularly not for cocoa.

07:23It also poisons water resources, et cetera.

07:26But the root cause of all unsustainable activity is poverty, and this is the big issue.

07:30If farmers don't think they're getting a good price for their cocoa, they say, I'm going

07:34to sell my land to the galamsey, and I'll make some money.

07:36And if you think, there are fixed prices in Cote d'Ivoire and Ghana.

07:40Farmers are getting around 3,000 euros a ton, roughly.

07:43In comparison, in Nigeria, they're getting around 6,000, 6,500.

07:47In Cameroon, more than 8,000, and those are liberalized markets.

07:51And so the problem here is the economic incentive.

07:53We've got to make sure there's an incentive for the farmers to invest in their farms and

07:56definitely stamp out things like illegal mining, because they cause huge destruction.

08:00Yeah, they certainly do.

08:01Thank you so much, Ted, for talking to us today.

08:03Good to have you back with us on the show.

08:05Ted George, Chief Narrative Officer at Cleo's Advice, looking at the outlook for the cocoa

08:09market this year.

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