From Bloomberg News. I'm Jennifer's Abisaga and this is the very first episode of the Next Africa Podcast, your weekly dive into business stories from across the continent. I am really excited to bring you this brand new podcast from money, politics and economy, to technology and even fashion and sports. Each week with one Bloomberg reporter or multiple, we're going to be lifting the lid on the news driving Africa. For our first episode, we're going to be talking about
one of my favorite topics and indulgences chocolate. Okay, delectly doing chocolates and carols like creamy chocolate. Who is that is enough?
Good Year? Anyone out a tast sensation rich, luxurious, unique.
You're assessably smooth chocolate put the world on pause. It's hard to find someone who is not a fan of chocolate. We all love it in so many different forms, from kit Kats to Mars or Cadburry, take your pick. But everywhere we go, companies are increasing the cost of your favorite chocolate bars and products. But what's the reason behind it and what does it mean for the overall industry. That's something we are going to talk about today on
the podcast with momby guitar. Hey, moobooy, how are you?
I'm good.
Hi. You are the best positioned person I think in our newsroom to be speaking about this, because you're our soft commodities reporter. Are you just eating all day?
I am not eating all day volvos. I don't think i'd be standing here.
You know. We brought you on because what we've been covering across Bloomberg platforms for the past few weeks is just the skyrocketing price of Coco right now. I just saw a banner that said logo for Coco. I feel like everybody is logo for Coco right now because now it's more expensor the likes of copper. Coco has exceeded nine thousand dollars for the first time ever as global supplies order just grip the market. Why are you stop piling chocolate? Do you really think that it's going to
get that much worse out there? Are you surprised by what we're saying?
No, I'm not surprised. And it almost feels like everywhere I turn in this newsroom, everyone is asking me what's happening to the price of Coco? But it's was expected. Everyone you speak to the trader say we were going to get here. But it's also fascinating the pace at t Whitich we've gotten here. In just a span of three months, prices have doubled. We started the year at four thousand dollars a ton. It's a vertical rise. It
almost looks like a rocket launch. I think that's been the most fascinating thing about the ratley in the cocoa market.
Let's just take a step back and try to contextualize how we got here. As somebody who's been watching these commodities for quite a while, where should we start.
We should start from West Africa. So in West Africa we have every coast and Ghana. They are the biggest producers of coco, and just West Africa alone accounts for seventy five percent of global production of coco. So without West Africa, we would basically not have coco or chocolate in the world. The rest comes from Latin America, so that accounts for about twenty five percent. And I was
in West Africa about three months ago. I think we had started to see that there's a problem there, and back then prices were not shooting as much as they are right now, and as they went through the fields. You could see fields that were flooded, that's because of rains. You could see sick trees. We went to a farm where half the plantation had sick trees that were infected with either black pod or stall enshoot. So it's just
a perfect storm of things. We've had climate change, you have diseases, and then the top that is farmers have been paid poorly for the last forty years, and so if you're not well paid, you don't invest back into your farm. And we've had high inflation in the last two years, so farmers have not been able to afford fertilizers chemicals to tackle diseases. As you can imagine, lack of investment on anything means that investment will not succeed.
So it's the lack of pay for farmers, diseases, climate change just the perfect storm that the cocoa market needed for us to have a deficit.
Is this a uniquely West African problem or is it something that we are seeing in other parts of the world.
It's a uniquely West African problem because West Africa has been the sole producer of cocoa, so they have many trees and the problem is that some of those trees are aging. As you know, as you get older, you become less bread active, and so is that tree, even cocoa tree. As the longer it takes it's in the farm, the less productive it gets. So in Latin America we're having them plant more neu trees. We have new plantations there, so they're a bit more productive. I'd call them useful trees,
whereas in West Africa we have old trees. Because of that, West Africa's production is falling and now the world is going to have a third day of deficit. What that means is that we're consuming more chocolate than we are producing coco.
I mean it is eating less chocolate. Really the solution here for consumers.
I don't know if you're like me, but every time I go to the supermarket and I go to the chocolate aisle, I cover the market so I know what's coming, I know why price is arising. But when I look at that cost, I'm thinking to myself, do I buy carrots, do I buy chocolate?
And what to do?
I'm assuming chocolate chocolate, But then the next day I'll take carrots, which is much cheaper, so I'm having to trade off and so that's a choice that consumers will have to make. Companies will still have to buy Coco to meet their products and to be able to supply their consumers with their favorite chocolates. And I don't think there's a way around it, as these costs will have
to be passed on to consumers. And we had the Mondolist chairman and CEO speak on Bloomback TV the other day about this.
Our input costs keeps from going up. Some are flats are coming down, but Coco, sugar in fact also and hazelnuts are the ones that are going quite high, and they're important in our products. So we unfortunately have to increase prices.
Again.
They say the QRE four high prices is high prices, and you have to come to a point where these high prices bring down demand significantly that prices come down, so it will be less demand that will bring prices back to the point of equilibrium. Otherwise, if we continue to eat more chocolate, then prices continue to go up.
So maybe is this going to start eroding the bottom line of some of these companies to the point where they may even start rethinking how much exposure their portfolios actually have to chocolate.
What the companies are trying to do fast is to cut production costs. We've seen companies that have started laying off some of their stuff that they think they can
do without because they're automating more. We've seen companies consider closures or factories that they think are too expensive to run, either because they've been there for too long and therefore running them is a lot more expensive, so they'll consider cutting production costs to where they can, and then in the long run, they will try and push products that have less cocoa in them, or try and push products that do not cut into their bottom line to make
sure that they are still running. Some of these companies don't just thrive on cocoa alone or on chocolate. They have other products on their portfolio, so they might try to push consumers to buy those cheaper products as they wait for cocoa prices to come down. That's if they will ever come down to levels that we've seen before.
Well, and membe that's on the end of the supply chain. Let's just start at the beginning with the actual cocoa farmers. How is this all affecting them? Because you mentioned this has been slow and steady getting to this point. But where are they at right now?
I think farmers are looking at the rally, or they're probably hearing about the rally in the prices and they're wondering, when are we going to greap benefits of this. So farmers in Cameroon, in Nigeria, in other parts of the world that are more liberalized are realizing the benefits of this rally. But farmers in Ivory Coast and Garner the prices their asset by the government and they usually set anyar in advance, so that means they've not seen the
benefits of this rally. Hearing that, there's more pressure on the government to make sure that they start to push on these prices to the farmers, that the prices for farmers are raised. If they don't do that, then we won't have more cocor growing in the farm. So it's I think in the government's interests to make sure that farmers are well remunerated and that this rally that is meant to benefit the farmers does actually benefit the farmers.
Are we seeing any of the governments really take some serious measures into consideration here to help with that.
It's not clear right now, because as I said, every constant gunners sell forward, so they've already reached agreements with exporters for this season and yeah, da advance, so there's little wig room for them in this season, but they can do that in the next season as they sell forward for the next crop. So we might see more changes maybe starting October when this is on starts, but between now and October there's very little will go room for the governments to work around.
Is there a risk of maybe doing too much, especially because we don't really know where the price of cocoa is going or is this needed for the farms across Ivory Coast and Ghana.
I wouldn't say there's a risk of doing too much, as not much has been done. So if you look at the where the price is, farmer is earning less than a sixth of where the price is, so there's still room for us to close the gap between what the price on the futures market is and what the farmer gets. So I think that is where the industry wants to get at and this was probably going to come.
I think there's just a lot that has been happening for the sector and this is the point where they have to realize that farmers need the money to grow more and unless they're well remunerated, then you won't be getting the cocoa, and then that's going to increase the cost for you and you may probably lose your consumers.
So this is just one of the many challenges as you mentioned that farmers are facing. I mean, what else is sort of hitting the industry right now that is having a significant impact on what's happening on the ground at some of these farms.
I think the biggest one, apart from prices that is keeping them awake, is what we call the EUDR, that's European Deforestation Law. That law is going to change how the coco market works, particularly in Europe. That law will require every farmer, I mean, every trader, every important of coco, whoever brings coco into the European Union to show that
that coco was not grown on deforested land. Now that's a big ask for an important If you bring iner shipment, you have to show that it was not grown on land that was recently deforested. What does that mean? They have to have the GPS coordinates of every farm where they source their cocoa. That's additional costs because these company is from Cargill to e Comm to Teuton. All these companies need to have boots on the ground and map every farmer and make sure that that farmer is not
enforested land. So apart from the rising coco prices, they have a regulation that will be implemented at the end of this year that they have to follow that they have to add THEA too, So most companies are concerned us about cocoa prices, but they're also looking at the timeline. They have to comply with the EUDR and make sure that by December twenty ninth of December thirtieth that they are able to trace every coco that they bring into the EU.
How does that even work? I mean in rural parts of Africa, I mean, how are you going to have the coordinates and some of these details that the EU is looking for.
First of all, the supply chain is just so complex. The farmer and the trader, they're all like six intermediaries between them, and so that coco is just constantly switching hands. And then how are you going to tell a farmer to map their land? They probably do not own a smartphone, so it's going to be really the bad end of the importer to do that. And trust me, if they have to take on more costs, there is no way they're going to absorb it into their own bottom line.
They'll probably make sure that the consumer pays for that, but it's a huge ask for importers. Coco has been blamed for driving deforestation in every cost and in Ghana. To make sure that that doesn't happen. They want to make sure that importers take responsibility of where the coco is coming from.
And maybe just getting back to cocoa and what we've seen over the past three months, when we think about the end of the year, can you use your crystal ball and give us your ideas or your outloock for what you think, because there's some analysts who we've been speaking to who think that we could see a crash soon. What do you think? What's the trajectory here?
I wish I had the crystal ball to begin with, but just looking at the market fundamentals, it's unlikely we'll get a supply response to see production come out of nowhere. It takes four or five years for a cockol tree to start producing, So even if farmers went to the field and planted coco right now, we won't see those pods until after three to four years. That's when we'll
see that production. Prices may correct, they may come down from the level we're seeing right now, but they won't go back to the levels that we saw a year ago or two years ago. Prices will still remain high because it's about balancing supply and demand. We are heading
into the third year of deficit. Supply response will not be there, so it's just a matter of finding that equilibrium, and that equilibrium will still be higher prices, so consumers have to get used to higher prices until when we see the supply response from this kind trees, which is not this year, not next year. So there's no relief insight for now.
So Mumbi, it's the future of what's really happening right now. Are we heading to a state where it's going to be a luxury, will be a luxury for kids to eat chocolate down the road?
Yes, but I think Europe, which is the largest consumer of chocolate, will probably still consider it an essential item. But for other parts of the world, maybe Asia or Africa, that will remain a luxury. As we see these increases, it will be out of reach for other people, maybe in middle income areas, probably in the developing countries, but I think for developed countries like Europe and the US, chocolate will still be a nice street to have every weekend of every once in a while.
All Right, thank you so much Mumby for this insight into the cocoa industry and also all the soft commodities that you're covering day and day out. We reallyppreciate having you on the first pod. I think the big takeaway here is that there's real challenges across the board in
the industry. It's really hitting farmers on the ground. Farmers need the support, the financial support to be trickling to their pockets in order to help support a lot of the disease and the decay that we've been seeing on a lot of these farms for the past few years.
But that needs to come in the form of government stepping in to help with some of this regulation and hopefully then the higher prices will at least even themselves out, although I think some of us hope that they'll come down a bit, so we'll have to wait and see how that pans out, and also how the EU regulation around deforestation really affects the industry more broadly, and whether we're going to see some of these big chocolate makers,
these big companies taking a hit. But for me at this time, I think I'm just going to focus on stocking up on as much chocolate as I can while the prices stay where they are. This program was produced by Christopher Pitt and Leone Drago and you can hear more stories like this one on the Next Africa podcast, available every week wherever you usually get your podcasts. I'm Jennifer Zabisagia. Thanks so much for listening. We'll see you next time.