The Impact of High Cocoa Prices on The Chocolate Industry
- Diego Miranda
- Mar 20
- 4 min read
Updated: Mar 25
For over a year now, the chocolate industry has been facing an unprecedented increase in costs on cocoa beans. Prices have skyrocketed from under $3,000/MT in June 2023 to over $12,000/MT in 2024, the highest in history.
Naturally, this rally has profoundly impacted not only financial markets but also industries deeply embedded with cocoa, particularly the chocolate sector.
In this blog, we explore how rising cocoa prices have impacted demand across chocolate markets, the consequences for industry players, and what can be expected of the future.
[Want to know where the cocoa market is headed? Get exclusive analysis with our Cocoa Market Reports. Start your free trial today!]
The Delayed Impact
When cocoa prices surpassed $10,000/MT in March 2024, many news articles generated alarming headlines suggesting chocolate would soon become inaccessible to most people.
Despite the panic, consumers did not experience immediate and proportional price increases, with the first prices increases happening only in the second semester, and with a far smaller intensity than the cocoa futures hikes. This difference was primarily due to the strategic use of hedging by chocolate manufacturers.
Hedging is a financial strategy designed to mitigate risks from price volatility in commodities. By entering into futures contracts, companies lock in prices for raw materials like cocoa, ensuring predictable costs for future purchases. This strategy helps businesses stabilize expenses and helps protect them against sudden market fluctuations. Chocolate manufacturers, in particular, rely heavily on hedging to manage their exposure to cocoa prices.
[Stay ahead of the cocoa market with expert insights. Sign up for a free trial of our Cocoa Market Reports and get real-time data delivered to your inbox!]
The extent to which chocolate companies hedge their cocoa purchases varies, but major manufacturers typically hedge significant portions of their cocoa supply many months in advance to avoid being caught unprepared.
Nevertheless, hedging does not offer a 1 to 1 protection and there are risks involved.Although delayed, the impact of higher cocoa prices on chocolate products could not be avoided indefinitely.
Chocolate Companies
Despite the media despair with cocoa prices, many analysts saw the unprecedented increase as temporary. However, as prices remained stubbornly high, chocolate companies started to be forced out for their short hedges by heavy margin calls and P&L losses, which further supported the bull market.
Chocolate companies then were compelled to significantly increase their physical prices over recent months. Others opted for alternative strategies, like reducing product sizes while maintaining stable prices or altering recipes to decrease cocoa usage.
Even with these challenges, many large companies reported improved financial results last year. They benefited from higher prices that supported stronger revenues and profit margins than anticipated in Q4 2024 (though the same cannot be said of the smaller ones).
Although surprising at first glance, this outcome can be explained by chocolate's inherent price inelasticity. Consumer purchasing behavior tends to be relatively insensitive to price changes, meaning consumption does not typically decline proportionally with rising prices. Chocolate is often seen as a small indulgence or even an essential product, sustaining demand despite price increases.
Thus far, this feature has helped support the chocolate market during one of the strongest cocoa price rallies in history. Nonetheless, even products with low elasticity eventually see demand decline when prices rise excessively.
[Make smarter trading decisions with our expert Cocoa Market Reports. Get the latest insights and forecasts—sign up now for a free trial!]
What Lies Ahead
Despite relatively positive short-term results, many chocolate companies remain concerned about future prospects. While reporting higher revenues, numerous firms simultaneously warned of a more challenging environment ahead in 2025, anticipating further price hikes and a notable decrease in demand.
These concerns are well-founded. Although chocolate demand is relatively price-inelastic, significant and rapid price increases inevitably impact consumer behavior. If chocolate becomes prohibitively expensive, especially within a short period, sales will likely decline—a scenario already reflected in recent financial reports from chocolate manufacturers.
Furthermore, overall economic conditions significantly influence chocolate demand. Regardless of price fluctuations, demand will always depend heavily on consumers' purchasing power. If economic conditions are favorable, with rising wages and profits, chocolate sales will increase. Conversely, if incomes fail to keep pace with rising prices, demand will decline.
In this context, the outlook appears unfavorable for cocoa demand. Sharp interest rate hikes in most developed countries following the pandemic have worsened economic growth forecasts. Currently, market consensus estimates US economic growth at only 2.0% in 2025, marking the slowest expansion since 2020 (or since 2016, excluding the pandemic period). Similarly, China's economy has considerably slowed since last year.
Europe, the world’s largest chocolate consumer, faces an even more challenging scenario. The Eurozone has not experienced quarterly growth exceeding 0.4% since 2022, with annual growth below 1.0% in 2023 and 2024, and a forecast of just 0.9% for 2025.
[Looking for reliable cocoa market research? Our reports deliver the latest trends, supply updates, and price analysis. Try a free trial today!]
Together, rising chocolate prices and unfavorable economic conditions are already impacting cocoa demand. Global grindings dropped significantly in Q4 2024, decreasing by 5.3% compared to the previous quarter and 3.2% year-on-year. Europe's grindings were particularly affected, declining by 6.3% quarter-on-quarter and 5.4% year-on-year.
As a result, the prospects for 2025 are considerably bleak. The ICCO forecasts a 4.8% drop in global cocoa grindings for the 2024/25 season, down to 4,650 MMT. If confirmed, this would represent the most significant decline since the 2008 financial crisis, when grindings fell 6.3% year-on-year.
Conclusion
The unprecedented rise in cocoa prices has sent ripple effects throughout the chocolate industry. Although hedging initially protected consumers the immediate effects, the persistent prices may have an inevitable impact on demand, and chocolate manufacturers are now forced to pass higher costs onto consumers through direct price increases, smaller products, or recipe adjustments.
As economic conditions weaken globally, consumers’ purchasing power also faces significant pressure. The combination of persistently high cocoa prices and declining consumer spending power is already starting to impact cocoa demand, as shown by recent reductions in cocoa grindings.
Looking forward, 2025 appears even direr. With demand projected to see its sharpest decline since the 2008 financial crisis, both chocolate companies and lovers must brace themselves for a tough road ahead, navigating not so sweet waters as they might have hoped for.
[If you enjoyed reading this, you'd love our Premium cocoa research. Sign up for a free trial here!]
Comments