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Rising Cocoa Prices Make Chocolate More Expensive This Valentine’s Day

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KEY TAKEAWAYS

  • U.S. retail chocolate prices have surged 10% in the past year—three times the rate of inflation.
  • Prices may continue rising because of worldwide supply shortages of cocoa, the main ingredient in chocolate.
  • Hershey Co., the largest U.S. chocolate maker, plans to lay off workers amid declining profits.

If your loved one is expecting chocolate this Valentine’s Day, celebrating it may prove not-so-sweet for your wallet.

The price of cocoa—chocolate’s main ingredient—has more than doubled in the past year and risen more than 40% in just the past month, hitting all-time highs.

Chocolate makers in the U.S., where Americans annually consume about nine-and-a-half pounds of chocolate per person, have swallowed some of the increase. But not all.

U.S. retail chocolate prices increased 10% in 2023, about three times the rate of consumer inflation—and that was before cocoa prices continued surging after the first of the year.

Cocoa’s Surge

Adverse weather and tree disease in West Africa, which produces about two-thirds of the world’s cocoa, has decimated output in Ivory Coast and Ghana, the world’s two largest cocoa bean producers. Chocolate makers grind cocoa beans to make liqueur and butter used in product formulations.

Cocoa futures for March delivery on the Intercontinental Exchange in New York and London closed at $5,888 per metric ton Friday, the latest in a series of historic highs.

A year ago, cocoa traded near $2,600 per metric ton; as recently as a month ago, prices hovered near $4,000-4,200 per metric ton.

Meanwhile, prices for sugar, the other key ingredient in chocolate, also have risen about 25% in the past year.

Shrinking Supply

Some analysts project the global cocoa supply shortage will stretch into its fourth year by 2025 amid increasing forecasts for El Nino patterns to dominate global weather.

Persistent winds that have dried out cocoa trees in western Africa caused Ivory Coast farmers to ship 36% less cocoa to the Africa’s west coast ports in the four months ended Jan. 28 than they did in the same period a year ago.

Likewise, cocoa inventories at U.S. ports fell to near a three-year low in January, and U.S. chocolate makers processed 3% fewer cocoa beans in the fourth quarter than they did in the period a year ago.

Lower shipments, inventories and processing jibe with data from the International Cocoa Organization, which estimates global supply fell short of demand by 99,000 metric tons in the 2022/23 marketing year.

In its latest monthly market review, the organization stated that the current 2023/24 marketing year “was also headed for an imminent deficit.”

Hershey Reacts

In the U.S., which consumes about a quarter of the world’s chocolate, producers and marketers have felt the cost pinch, even after passing some of it on to consumers.

Hershey Co. (HSY), the largest U.S. chocolate maker, last week said its fourth-quarter profit fell 11.5% from a year ago. Though net sales rose marginally to $2.66 billion, the company’s operating margin dropped 240 basis points to 17.5%, reflecting higher costs.

Michele Buck, Hershey’s CEO, said surging cocoa prices will continue limiting the company’s earnings growth in 2024. The company announced plans to cut up to 5% of its workforce as part of a strategy to slash $300 million in annual expenses.

Buck declined to say whether the company would raise chocolate prices moving forward. But she certainly left open the possibility.

“Given where cocoa prices are, we will be using every tool in our toolbox, including pricing, as a way to manage the business,” she said.

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