Market Overview

Chocolate Crisis: Cocoa Demand Will Be Unsustainable By 2020

Chocolate Crisis: Cocoa Demand Will Be Unsustainable By 2020
Related HSY
5 Biggest Price Target Changes For Tuesday
Benzinga's Bulls & Bears: Amazon, Chevron, Netflix, Snap, And More
Goldman Sachs negative on Hershey (Seeking Alpha)
Related NSRGY
Investors Love This Vanguard ETF
A Global Consumer Staples Idea
Nestle looks to shake up board (Seeking Alpha)

Last week, the industry experts on cocoa gathered in London and came to a conclusion that the growing demand for cocoa will be unsustainable by 2020.

Independent statements by chocolate giants such as Hershey (NYSE: HSY) and Mars also agree that by 2020, the “situation will be unsustainable.

The global chocolate confectionery market is currently worth over $80 billion and around 3.5 million tons of cocoa are produced per year to meet the demands. Propelled by the emerging markets such as India and China, the demand for cocoa is set to rise nearly 30 percent to 4.5 million tons by 2020.

Despite the annual growth in demand, the cocoa production infrastructure is not expected to keep up as the number of cocoa farmers decline.

Most of the profit on cocoa is reaped during and after the processing of the beans occur and cocoa farmers in West Africa only receive between 3.5 to 6.4 percent of the final value of the product. This is a sharp fall from 16 percent of the final value received in the late 1980s.

Due to the lack of profitability and the volatile prices of cocoa, the farmers are abandoning the crop for more lucrative choices like rubber.

Even as the number of cocoa farmers decrease, the pressure is mounting on chocolate companies to use certified cocoa due to the widespread use of child and slave labor in the cocoa farming industry.

Most chocolate companies, including Mars, Hershey, Ferrero, and Nestlé (OTC: NSRGY) have promised to increase the use of certified cocoa – Hershey and Mars stating that they will have 100 percent certified cocoa by 2020.

With certified cocoa accounting for less than five percent of current cocoa usage, this will also cause a decline in the supply of cocoa available.

Chocolate producers are focusing on training and educating new farmers and providing better incentives for cocoa farming for future sustainability. Movements from organizations such as Fair Trade and Cargill have shown promising results.

Cocoa rallied to 23-month high in the ICE futures this week as the International Cocoa Organization (ICCO) forecast a deficit in the cocoa market in the upcoming years.

Posted-In: cargill Fair Trade Ferrero HersheyFutures Commodities Markets Trading Ideas Best of Benzinga


Related Articles (HSY + NSRGY)

View Comments and Join the Discussion!