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Is the world about to experience a chocolate crisis?

Once every couple of years, we travel deep into the interior of Brazil, to the heart of Bahia – the state where my wife is from. We usually find ourselves on a farm with her father, picking bananas, jackfruit, guava, coconuts, sugarcane and many other types of fruits that don't have English names. One of these fruits is cocoa, and surprisingly, many people don't know that it's edible.

Its seeds are the key ingredient for chocolate and they are never discarded. They are treated like gold in Brazil. In fact, they might now be worth more than gold.

Consider the chart below. The world is facing a chocolate crisis. Cocoa prices have exceeded even their previous all-time high from the late 1970s. Global production has not kept pace with demand.

The root of the problem does not lie with Brazil. The majority of cocoa comes from the Ivory Coast and Ghana, which are the world’s major suppliers. Prices are tightly controlled by their governments, which set official prices. By selling forward, officials guarantee a price, but this means farmers miss out on price rallies. Consequently, there is no incentive for poor farmers to increase production, even as demand rises.

What does this mean? I'm not sure, but I live in Switzerland, a country synonymous with chocolate. I hope this doesn't impact the chocolate industry here.

Source: Bloomberg

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