Cocoa farmers feel the heat as drought, tariffs shake global chocolate market

West African cocoa farmers are facing another drought, upsetting their calculations. Farmers in Ivory Coast and Ghana, the main cocoa-producing countries, are struggling due to lack of rain. Information from the agricultural sector indicates a drop in production in both countries preparing for their second harvest. Shockingly, they are expected to have the lowest second harvest in over a decade.

Although harvesting will begin this month in both countries, farmers are disheartened looking at their farms. Initial assessments suggest a 9% drop in yield compared to last year, but it could be even worse. Ivory Coast's yield, which was 9.44 lakh tonnes last year, is expected to fall to 9 lakh tonnes this year. Ghana's yield was earlier estimated to decrease by 5%. The reduced cocoa arrival at processing centers in Europe has already put manufacturers under pressure. Forward trading by buyers to secure availability has shaken up the international cocoa futures market since mid-week.

For several months, cocoa futures traded in a narrow range with little excitement. However, in the last two days, trading volume has increased as investors show renewed interest. This has pushed prices back to levels seen after mid-February. In the New York exchange, cocoa prices broke the $9000 resistance last night, putting some speculators under pressure. Their attempts to cover their positions pushed the price up to $9370. However, while a significant portion of sellers are closely watching cocoa's movements, some believe that the $9400 resistance will be difficult to overcome for now. As it was the end of the week, operators took profits at the start of trading on Friday, causing the price to fall by 8% at one point, dropping to $8500 (an $800 drop).

The market's undercurrent, and the sweetness and bitterness of cocoa, will become clearer when trading resumes on Monday in the US market. If new investors enter the market, this bull rally could give cocoa the strength to break the crucial $10,000 resistance before Easter. Otherwise, a technical correction may force the product down to $7740. Meanwhile, America's new tax structures could also impact cocoa prices. In its latest tariff, America has announced a 21% tax on imports from Ivory Coast, the world's largest cocoa producer. It also imposed a 10% duty on imports from Ghana, the second-largest producer.

America is among the leading importers of chocolate and cocoa. The US Department of Agriculture's Foreign Agricultural Service states that they imported approximately four billion dollars worth of chocolate and cocoa in 2023. However, they cannot currently achieve self-sufficiency in cocoa production to meet domestic demands through import controls. America does not have a climate suitable for cocoa cultivation; a tropical climate is essential for growing cocoa beans. While the American state of Hawaii has such a climate, cocoa plantations are not widespread there. Therefore, the US has no option but to rely on imports.

Currently, Canada and Mexico are the largest exporters of chocolate to the US. Therefore, there is a 10% reduction in the base tax on imports from both countries. They also have a huge demand for cocoa beans, cocoa butter, cocoa paste, and cocoa powder. It's unlikely that the American population's love for chocolate will diminish overnight.

New cocoa is entering the state markets. Farmers from low-range and high-range plantations have cocoa ready for sale. Some farmers are trying to sell green cocoa, as the price drop to ₹95-100 per kg discourages processing. Cocoa beans are also being marketed at ₹270-300 per kg. If favourable news emerges from the international market next week, domestic chocolate manufacturers who have been hesitant due to uncertainty in storage might return to the market.