Fears about ebola could end up drastically raising the prices of chocolate over Halloween and the holidays, say economists. The Ebola outbreak of 2014 is centered in West Africa, the area that grows most of the world’s cocoa. The price of cocoa, and subsequently the price of chocolate, have increased due to the epidemic, but is the disease causing a cocoa scarcity or are commodities traders cashing in on baseless fear?
Reported cases of Ebola are nearing 14,000 with more than 5,000 verified deaths so far. These numbers are likely lower than the actual incidence of disease and deaths. The virus has far-reaching impacts, not only in the nations where people are dying, but all across the world. Trade disruptions may have lasting economic consequences. Is the world’s supply of chocolate part of Ebola’s collateral damage?
The countries of Ghana, Nigeria, Cameroon and the Ivory Coast produce 70 percent of the world’s cocoa. The neighboring nations of Liberia, Guinea and Sierra Leone have been hit hard by the Ebola virus. Since late last spring, amid fear that the virus would continue to spread throughout West Africa, the price of cocoa has risen dramatically. Market analysts say the price of cocoa has been rising and falling like a roller coaster all summer, but it seems that the market price is responding to news stories and fear about Ebola rather than any slowdown in production.
The Ivory Coast, which exports 37.8 percent of the world’s cocoa, actually announced a record harvest of cocoa and the government has increased the amount paid to farmers. Yet, the price of cocoa has increased 20 percent – and that is down from spikes of 35 and 40 percent.
Demand for chocolate has grown, and the weather may not have been optimal for a bumper crop of cocoa, but neither factor accounts for the price increase. Commodities are traded on margin and price fluctuates based on market volatility. However, a predicted volatility affects the price of a commodity more than current supply and demand. Therefore, fears over ebola could potentially cause a real future shortage and drastically increase the price of chocolate for Halloween and the holidays.
First, buyers were afraid that Ebola would spread into cocoa-producing nations. Then, they worried that people who normally travel into the cocoa-producing countries to help with the harvest would not be able to move into the nations. Neither of these fears played out. What did happen was that suppliers realized they could charge more for cocoa and buyers would still be willing to pay. Suddenly, chocolatiers are paying a premium for the raw product even though supply remains high.
In a capitalist system prices are supposed to be bound by the laws of supply and demand. However, the human factor cannot be removed. Economists say that irrational fears often drive markets and raise prices artificially. When suppliers realize they can keep those prices high, experts theorize, they are taking advantage of the consumers. Some hope that the winners of this situation will be the cocoa farmers. They live on the edge of abject poverty; often not even being able to afford a chocolate bar made from the cocoa they grow. Higher prices may give them a larger share of the profit from an industry worth billions.
A more realistic scenario, say some commentators, is that large food processing companies like Cargill, Archer Daniels Midland and Bunge are making huge profits by charging chocolate companies like Hershey and Nestle much higher prices. The large chocolate manufacturers can absorb the increases and pass them to the consumer. Smaller chocolate companies are much more susceptible to price fluctuations.
One economist said that the fears over ebola could cause a drastic rise in chocolate prices because of the advantage-seeking practices of chocolate traders. Because people are so emotional and irrational over ebola, he says, even though there is no shortage now, one could possibly be expected in the future as fears continue to rise and traders cash in on the hysteria.
Analysts predict that consumers can expect to pay more for their chocolate this fall and winter. It will be slightly more expensive to treat the trick-or-treaters and celebrate the holidays sweetly. A minor increase is one thing for consumers to deal with, but some experts are saying that fears over ebola could drastically raise prices on chocolate for Halloween and the holidays. The virus is being blamed for the increase despite the fact it has not actually disrupted the cocoa harvest in West Africa. Fear of Ebola has caused the price jump.
By: Rebecca Savastio