Why is Cocoa Valuable?
Cocoa is a food derived from the dried and fermented seeds (beans) of the Theobroma Cacao plant, which means “food of the gods” in Greek. It's primarily used to make chocolate.
The Mayans first cultivated cocoa trees more than 5,000 years ago and made a ritual beverage from the seeds. In the 15th century, Spain began to acquire cocoa, and by the 17th century cocoa’s popularity had spread throughout Europe.
Today civilizations all around the world enjoy cocoa in thousands of different ways. With the annual consumption of cocoa beans topping 4.5 million tons, cocoa is an important commodity in world markets.
How Is Cocoa Grown?
Cocoa trees grow in tropical regions. They require humidity, good soil drainage and consistent rainfall to grow properly.
There are three widely known species of the Theobroma Cacao plant:
- Criollo – Primarily grown in Central America
- Forastero – Primarily grown in West Africa and South America
- Trinitario – Grown in all cocoa-growing regions
Growers use one of two methods to plant the crop:
- They plant young trees between permanent or temporary plants such as coconuts, plantains and bananas. These crops provide shade for the young cocoa plants.
- They thin out mature cocoa plants and place the young trees between the older plants.
The Theobroma Cacao plant that produces cocoa beans grows to be 30-feet tall and produces colorful flowers and white fruit. A cocoa tree takes five years to produce cacao pods, which are the name given to its fruit. Cacao pods have reddish-orange or yellow coloring and very hard shells.
The peak growing period for a cocoa plant is ten years, but some trees can continue to be productive for decades. Once cacao pods begin to grow, they take four to five months to mature and several weeks after that to ripen. Each cacao pod contains about 40 to 50 beans. Cacao pods grow from the trunk and branches of the cocoa tree.
Since the beans begin to germinate if they are left on the tree for more than three to four weeks after ripening, the timing of the harvest is crucial.
Once they are ripe, farmers cut the fruit from the trees with machetes or sharp knives, extract the wet beans and begin the process of drying and fermenting.
Fermentation takes three to seven days and the sun drying process takes several more days.
The top cocoa producing countries are all within 20 degrees of the equator.
Top 10 Cocoa Bean Producing Countries
|Rank||Flag||Country||Tons of Cocoa Beans Produced per Year|
The top importers of the commodity are predominantly North American and Western European countries.
Top 10 Cocoa Importing Countries
|Rank||Flag||Country||Volume of Cocoa Products Imported in Metric Tons||Value of Cocoa Products Imported in USD (million)|
Consumers use cocoa in both food and non-food applications:
4 Main Uses of Cocoa
|Use of Cocoa||Description|
|Cocoa Liquor||The main ingredient in chocolate and confectionery products|
|Cocoa Powder||Used as an ingredient in chocolate-flavored drinks and desserts|
|Cocoa Butter||Used to manufacture chocolate as well as cosmetic products such as moisturizing cream and soap|
|Cocoa Husks||The husks of cacao pods and the pulp surrounding the beans have a variety of commercial uses:|
What Drives the Price of Cocoa?
The price of cocoa is driven mostly by these six factors:
- Production Cycle
- Infrastructure and Transportation
- Consumer Preferences
- British Pound
The supply of cocoa is heavily concentrated geographically. Over 60% of global production comes from a few countries in Western Africa with the Ivory Coast being the largest grower.
Cocoa prices can experience wide swings as a result of news from this region. Political and civil unrest and labor disputes can create supply bottlenecks that lead to sharp rises in prices. The Ivory Coast, for example, has experienced political corruption and instability since declaring its independence. A rise in political tensions in this country could severely hamper cocoa supply.
Cacao pods require a mix of wet weather and sunshine to ripen.
Each stage of the five-year process from planting to fruit production requires ideal weather conditions. Episodes of long drought conditions or heavy rains can cause the pods to dry out or rot. Since weather determines the yield of the crop, it can have a major impact on cocoa prices.
The production cycle from cocoa planting to harvesting is a multi-year endeavor.
Farmers have to make decisions about crop production long before they will see profits from their investment. Factors including the future outlook for prices impact the quantity of production.
However, because there is such a long growth cycle, the market supply of cocoa often can’t quickly react to changes in demand. This can lead to cocoa shortages and spikes in price. Compounding this problem is the fact that cocoa is perishable and can’t be stored indefinitely.
Infrastructure and Transportation
Cocoa is grown in mostly impoverished parts of the world with limited infrastructure.
Poor roads and transportation equipment make the region susceptible to supply disruptions. Excessive rain, for example, can lead to significant delays in transporting cocoa to consumers. These delays can result in supply shortages and higher prices.
Changes in consumer tastes can affect demand for cocoa and impact prices.
In many western countries, dark chocolate consumption is on the rise due to positive publicity about its health benefits. Dark chocolate requires more cocoa to produce than milk chocolate.
Emerging market consumers can also drive cocoa prices. Since chocolate is a discretionary item, wealth affects its demand. As emerging economies acquire more wealth, their demand for chocolate products will probably grow.
Cocoa is one of the last remaining commodities to be traded in British pounds. When the pound weakens, the price of cocoa becomes more expensive on the London futures market. However, US futures for cocoa trade in dollars, so their price is affected by the US currency.