How the Cocoa Tree Can Affect Venezuela

For sixty years, cocoa was a cheap product. This defined the ways in which this economic sector organized itself around the world, and the scale of investment in each region to increase quality and yield. But now a new hunger for chocolate and climate change have merged into a price change so big it’s changing the fundamentals of the industry.

According to Bloomberg, global consumption will far exceed production by 2023-2024, something not seen since the early 1960s. This is the third shortage year in a row, explains Venezuelan expert Helen López, director of the Madrid Escuela de Chocolate. “From January to the end of March, cocoa on the New York Stock Exchange went from $2,000 to more than $10,000 per ton, breaking a low price phenomenon which has lasted for the past sixty years.”

There are several reasons for this. The two main producers, Ivory Coast and Ghana (which produce 70% of world cocoa production), have not been able to meet their production obligations for three years, partly due to climate change. El Niño and La Niña have led to increased droughts and flooding that damage plantations and stimulate plant diseases. At the end of March, Ghana announced that the harvest would be half of the expected yield: just over 420,000 tons, the lowest in 22 years.

The result: some areas are yielding half of their traditional tonnage, while global demand continues to grow thanks to the boom in emerging consumer markets in Asia and the Arab world. “The planet is eating more chocolate,” López says. “In fact, demand has been growing at more than 4% per year for ten years.”

So the increase in the price of cocoa from Ivory Coast and Ghana, reflected in the New York Stock Exchange, became a global price increase and reached Venezuela, where cocoa reached an average of 5,000 dollars per ton. This corresponds to US$5 per kilo of medium-quality F2 cocoa, which sold from US$1.50 to US$3.50 per kilo at the end of 2023.

The industry responded by buying cocoa futures en masse, creating a lack of liquidity and causing the price to fall dramatically. At the time of writing, the global cocoa price is subject to intense instability.

But as Venezuelan producer Douglas Dager says, the global price increase has little impact in Venezuela because “our productivity is very, very low. Our plantations are owned by low-income farmers and the company is not engaged in cocoa production, but in its sale, distribution and processing into products such as chocolate, which at an industrial level uses a lot of vegetable fat and little cocoa, and the pharmaceutical industry.”

So for Dager, the pressure coming from increased consumption of cocoa by-products will “suddenly stop,” which would stabilize the price at a fairer level, “around $4 per kilo, $4,000 per ton.”

The opportunity within the crisis

Can we think or dream that a global cocoa boom will at least be a good stimulus for the reconstruction of the Venezuelan cocoa sector?

Does this mean that just after Chavismo killed our oil industry, we can enjoy a cocoa boom just like in the 18th century?

Not necessary.

According to Helen López, the major chocolate factories, globally speaking, will focus on so-called analogues: chocolate versions made with by-products such as cocoa powder and grains from other sources. “We are already seeing products on the shelves with additional flavors, or more creamy and fondant, that respond to the need to replace cocoa with other ingredients. Small factories risk closure if they cannot absorb the new cocoa price. In markets with little maturity, such as Venezuela, where there are no consumption peaks such as Easter, it is more difficult to break the price barrier with products such as bombons or tablets.”

In Venezuela, adding other ingredients to a chocolate product means dealing with costs and complications that do not exist in a developed economy like Europe. Venezuelan chocolate makers will have to think twice before replacing a tablet with a bonbon or a chocolate pill with less cocoa, integrating additional costs for ingredients, processing and packaging.

For the Guarataro cocoa producer Albe Gorrín, “the huge price increase is a stimulus, an impetus and a little help: the price has risen, we now have more producers, and if we want cocoa to become a dynamic sector of our economy, we must understand that the new situation will bring more competition and joy to those who know how to use it.”

Gorrín and Dager agree on the need to take this opportunity to improve processes and standards on the plantations and, in the next stages, to protect and transport the fruit or beans without compromising their quality, such as Ecuador, Brazil, Costa Rica, Mexico and the Dominican Republic have already done so.

This effort has already begun. In general, plantations continue to operate with practices that have minimal impact on the environment and seek to be sustainable. Producers also reforest with local cacao trees to preserve their genetics, restore the canopy and improve environmental balance. There are practices that associate nature conservation and cocoa production with green tourism, while chocolate makers insist on training producers to ensure quality at every step after harvest.

“There is a push to increase production,” says Gorrín, but in line with changes in the international standard, which takes into account the conservation of forests, soils and water bodies. Here, in Guayana, cocoa is useful to combat deforestation due to irregular mining.”

López adds that having the best genetics is not enough. Higher quality standards must be met. Now that the price became a completely different thing, it could enable investments that until today had no economic significance.

A rights project, another problem

For example, producing cocoa in Venezuela means that you cannot make any profit at all, just by buying gas to get your product to the buyer. And now the National Assembly is discussing a new Ley del Cacao.

This law, according to the draft, expects to “protect and promote cocoa production and related activities”, but as it stands, it would involve the government in the production and commercialization chain, while reducing the reasons to maintain sensory quality . of Venezuelan cocoa, which is only possible if certain technical and sanitary requirements are met.

Once again, what is a strictly economic and commercial matter is being turned into a political debate. Producer Gorrín has a few dialogue tables, but he is not invited “because I belong to a certain federation and not to the PSUV”. He believes that the state cannot be the ruling entity, the producer, the buyer and the exporter. “You want to take advantage of these new prices to improve production and compete globally, in foreign markets where quality and not political relations matter, and no, you can’t because here the issue is being politicized instead of focusing on production and domestic competition. .”

Despite all this, Venezuela exported 300 tons of cocoa from Mérida to Estonia and Indonesia, an achievement that leaves more doubts than joy.

Juana Gómez, from the National Association of Venezuelan Cocoa Producers (ASOPROCAVE), says farmers “are not asking for the new price because of the difficulties of production. Moreover, this new law does not promise us any benefits. It sets prices for industry and processing plants, a clear example of the fact that our problem is not price, but productivity, the lack of greenhouses, soil recovery, financing. It is good that the law concerns cocoa, but it does not take into account the producers, the people who grow cocoa. Once again the government is making its plans and we do not see what they have to do with us.”

Meanwhile, the finished product sector is waiting to see the impact of the price increase on Venezuelan cocoa. In Miami, Venezuelan chocolatier Isabel García Nevett, co-owner of a chocolate shop that promotes the use of cocoa from Venezuela, says they have already felt the change in the Venezuelan chocolate they buy, but only among many other price increases in the US. inflationary context of North America since the pandemic. “We mainly use Venezuelan chocolate. The supply has been stable so far, even if the price changes. I don’t know how the market for Venezuelan cocoa will behave in the future, but a higher price is always paid because it is difficult to find.”

In this company the plan is to continue using Venezuelan cocoa. “It is an aspect appreciated by some customers, those who come from Venezuela, and those who really know cocoa and chocolate.”