Exclusive: ICCO delivers latest global cocoa forecasts revealing international surpluses – Confectionery Production

A Shifting Tide in the Global Cocoa Market

In a significant development for the global confectionery industry, the International Cocoa Organization (ICCO) has released its latest quarterly forecast, revealing a pivotal shift from a finely balanced market to a projected global surplus for the current cocoa season. This announcement, detailed in the ICCO’s closely watched Quarterly Bulletin of Cocoa Statistics, sends ripples across the entire supply chain, from the smallholder farmers in West Africa to the boardrooms of multinational chocolate corporations and the trading floors of London and New York.

For several seasons, the narrative has been dominated by concerns over tight supplies, weather-related disruptions, and the potential for a supply deficit that could drive cocoa prices to new heights. The ICCO’s new data suggests a reversal of this trend, indicating that global production is set to outpace demand. While the term “surplus” might suggest a period of abundance and lower costs for chocolate manufacturers, the reality is far more complex, fraught with implications for farmer livelihoods, sustainability initiatives, and the long-term health of the cocoa sector. This comprehensive report delves into the numbers behind the forecast, explores the driving forces of this market shift, and analyzes the profound consequences for all stakeholders involved.

Unpacking the ICCO’s Latest Forecast

The ICCO, as the primary inter-governmental body for the cocoa sector, serves as the definitive source for global supply and demand statistics. Its forecasts are meticulously compiled from member country data and are the bedrock upon which industry players make strategic decisions. The latest bulletin presents a compelling statistical narrative of a market in transition.

The Key Figures: Production, Grindings, and the Surplus

While the ICCO’s full, detailed report contains granular data, the headline figures paint a clear picture. The forecast points to a significant increase in global cocoa production for the 2022/2023 season, primarily driven by strong output from the world’s leading producing countries. This surge in supply is contrasted with a more modest growth, and in some regions, a slight contraction, in global grindings—the key industry metric for cocoa demand. Grindings refer to the process of crushing cocoa beans into the core ingredients of chocolate: cocoa liquor, butter, and powder.

The mathematical result of this divergence is a production surplus, measured in thousands of tonnes. This surplus effectively means that at the end of the cocoa year (which runs from October to September), the world will have produced more cocoa beans than it consumed. This excess supply will be added to global stockpiles, or stocks-to-use ratios, a critical indicator of market comfort. A rising stocks-to-use ratio typically exerts downward pressure on commodity prices, as it signals a greater buffer against potential future supply shocks.

A Reversal from Recent Deficits

This forecast is particularly noteworthy because it marks a departure from the market dynamics of the past few years. Previous seasons were characterized by a delicate balance, with several forecasts pointing towards deficits. These deficit fears were fueled by a combination of factors, including concerns about aging cocoa tree stocks, the prevalence of diseases like Cacao Swollen Shoot Virus (CSSV) in West Africa, and adverse weather patterns linked to climate change. This tight supply environment kept a floor under cocoa prices and created a sense of volatility and uncertainty for buyers.

The projection of a surplus fundamentally alters this market psychology. It shifts the power dynamic slightly from sellers to buyers and introduces a new set of strategic considerations. For an industry that has been bracing for scarcity, the prospect of abundance—even if temporary—requires a significant recalibration of purchasing strategies, risk management, and financial planning.

What’s Driving the Surplus? A Tale of Two Continents

The shift to a global surplus is not a random occurrence but the result of specific agronomic, climatic, and economic factors converging across key cocoa-growing regions. The story is largely centered on a strong performance in West Africa, complemented by steady growth in other parts of the world.

West Africa’s Bumper Crop: Côte d’Ivoire and Ghana

It is impossible to discuss global cocoa supply without focusing on Côte d’Ivoire and Ghana. Together, these two nations account for over 60% of the world’s cocoa production, and their performance dictates the direction of the entire market. The ICCO’s forecast is heavily influenced by expectations of a robust harvest in both countries, particularly in Côte d’Ivoire, the undisputed global leader.

Reports from the region indicate a strong main crop (harvested from October to March), which is the larger of the two annual harvests. This has been supported by favorable weather conditions during the crucial pod development phase. Furthermore, government-led initiatives aimed at improving farm productivity, such as the distribution of higher-yielding seedlings and training in good agricultural practices, may be starting to bear fruit, contributing to higher output per hectare.

The Role of Favourable Weather and Agronomic Factors

Weather is the single most critical variable in cocoa farming. The 2022/2023 season appears to have benefited from a “Goldilocks” scenario in many West African growing zones: sufficient rainfall during the growing season to support pod development, followed by adequate sunshine and drier periods for harvesting and drying the beans. This has helped mitigate some of the threats from diseases like black pod, which thrives in excessively wet conditions.

Moreover, the timing of the seasonal Harmattan winds—dry, dusty winds that blow from the Sahara—was less severe than in some previous years. A harsh Harmattan can desiccate young flowers and small pods, severely impacting the potential of the mid-crop (the smaller harvest from April to September). The relatively benign conditions this season have supported the outlook for a healthy mid-crop as well, solidifying the overall production surplus.

Latin America’s Growing Influence

While West Africa remains the powerhouse, production growth in Latin American countries like Ecuador, Brazil, and Peru is also a contributing factor. Ecuador, in particular, has seen a remarkable expansion of its cocoa sector over the past decade. It has successfully positioned itself as a major producer of both bulk and fine-flavor cocoa, thanks to investments in modern farming techniques and disease-resistant Cacao Nacional varieties. This growing output from outside the dominant West African bloc adds a new layer of diversity to global supply and contributes to the overall surplus.

The Demand Side of the Equation: A Complex Picture

The cocoa surplus is a two-sided story. While production is robust, global demand, as measured by grindings, has shown signs of faltering. This softening demand is a reflection of broader macroeconomic trends and shifting consumer behavior.

Stagnation and Sensitivity in Europe and North America

Europe and North America are the world’s largest chocolate-consuming markets. However, they are mature markets with relatively slow growth rates. Recent grinding data from both regions has been mixed, with some quarters showing slight declines. This is largely attributable to the economic pressures facing consumers.

Record-high inflation, soaring energy costs, and rising interest rates have squeezed household budgets. Chocolate, while a beloved treat, is ultimately a discretionary purchase. When faced with mounting bills for essentials, some consumers may reduce their spending on premium confectionery or trade down to cheaper alternatives. This price sensitivity has a direct impact on the volume of cocoa being processed by manufacturers in these key regions.

Asia’s Evolving Taste for Chocolate

For years, Asia has been hailed as the next major growth engine for chocolate consumption. While the long-term trend remains positive, with a growing middle class developing a taste for cocoa products, the short-term picture is more nuanced. Economic slowdowns in key markets, coupled with lingering effects from the pandemic, have tempered the pace of demand growth. Grind data from Asia has shown resilience but has not accelerated at the rapid pace once anticipated, meaning it has not been enough to fully offset the sluggishness in Western markets.

Global Economic Headwinds and Consumer Discretionary Spending

The overarching theme on the demand side is the impact of a fragile global economy. The International Monetary Fund (IMF) and other organizations have repeatedly downgraded global growth forecasts. In this environment, confectionery companies face a difficult balancing act. They have been forced to pass on higher costs for energy, transport, sugar, and packaging to consumers through price increases (a phenomenon known as “shrinkflation” or direct price hikes). These higher retail prices, in turn, can dampen consumer demand, creating a feedback loop that results in lower grind volumes.

Wide-Ranging Implications of a Cocoa Surplus

The shift from a balanced market to a surplus has profound and often contradictory implications for the different actors within the cocoa value chain.

For Cocoa Farmers: The Persistent Price Conundrum

For the world’s estimated 5-6 million smallholder cocoa farmers, a global surplus is almost uniformly bad news. Basic economic principles dictate that an excess of supply leads to lower prices. The international cocoa price is determined on the futures exchanges in London (for Euronext) and New York (for ICE). A surplus forecast creates a bearish sentiment among traders, leading to a fall in these benchmark prices.

This directly impacts the income of farmers. In Côte d’Ivoire and Ghana, the government sets a fixed farm-gate price for each season, but this price is derived from the international market rates. If the global price is low, the price paid to farmers will also be low, pushing many who already live below the poverty line into even greater financial distress. It complicates efforts to achieve a living income and can perversely disincentivize investment in sustainable farming practices, as farmers are forced to focus on short-term survival.

For the Confectionery Industry: A Breath of Cautious Optimism

For large chocolate manufacturers like Mars, Mondelēz, Nestlé, and Hershey’s, a surplus can provide a welcome respite. Lower cocoa bean prices can help offset inflationary pressures from other raw materials, labor, and energy, potentially boosting profit margins. It provides greater predictability in sourcing and reduces the immediate risk of supply chain disruptions.

However, this relief is tempered by significant reputational and regulatory risks. Major brands are under intense scrutiny from consumers, NGOs, and governments to ensure their cocoa is sourced ethically and sustainably. Publicly celebrating low prices that are known to harm farmers is not a viable strategy. Companies are increasingly tied to long-term sustainability programs and commitments to farmer welfare, which are complicated by a low-price environment. Therefore, the optimism is cautious, as the industry must balance short-term cost benefits with long-term supply chain resilience and corporate social responsibility.

For Commodity Traders and the Financial Markets

The ICCO’s forecast will fuel activity in the commodity markets. Traders, hedge funds, and speculators will adjust their positions based on the new supply-demand fundamentals. A confirmed surplus outlook will likely encourage “short” positions (bets on prices falling further). The market will become highly sensitive to any new information that could challenge the surplus narrative, such as reports of adverse weather in West Africa or a sudden rebound in demand figures, leading to potential volatility.

The Broader Context: Beyond Supply and Demand

The surplus forecast does not exist in a vacuum. It intersects with several powerful, long-term trends that are reshaping the cocoa industry.

The Looming Shadow of the EU Deforestation Regulation (EUDR)

Perhaps the most significant regulatory challenge facing the industry is the European Union’s new law on deforestation-free products. Set to come into force, this regulation will require companies selling cocoa products in the EU to prove, via geolocation data, that their beans were not grown on land deforested after 2020. This demands an unprecedented level of traceability throughout a complex and fragmented supply chain. A surplus market does not make compliance any easier. In fact, it may add complexity, as companies must ensure that the abundant, cheaper cocoa they are buying is also fully traceable and compliant with the EUDR.

The Living Income Differential (LID) Under Pressure

In 2019, Côte d’Ivoire and Ghana introduced the Living Income Differential (LID), a fixed $400-per-tonne premium on all cocoa sales, designed to raise farmer incomes. In a deficit or balanced market, it is easier for producing countries to command this premium. However, in a surplus market where buyers have more leverage, the effectiveness of the LID comes under immense pressure. Buyers may try to negotiate down other premiums or differentials to offset the cost of the LID, indirectly undermining its purpose. The current surplus will be a major test of the resilience and long-term viability of this landmark policy.

Climate Change: The Ultimate Wildcard

While the weather has been favorable this season, the long-term threat of climate change remains. Scientists predict that rising temperatures and more erratic rainfall patterns will make many current cocoa-growing areas in West Africa unsuitable for cultivation in the coming decades. A single-season surplus can create a false sense of security, distracting from the urgent need for investment in climate-resilient cocoa varieties and adaptation strategies to secure the future of the crop.

Expert Analysis and Industry Reaction

Market analysts have reacted to the ICCO’s forecast by adjusting their price targets downwards, though most caution against expecting a dramatic price collapse. The market has, to some extent, already priced in the expectation of a strong West African crop. Experts note that while the headline figure is a surplus, the size of that surplus relative to global consumption is what truly matters. A small surplus may be absorbed with minimal price impact, while a large and growing surplus could signal a more protracted period of low prices.

Industry associations and confectionery companies have responded with carefully worded statements, acknowledging the updated supply figures while reiterating their commitment to their sustainability goals. The consistent message is that ensuring a resilient and sustainable supply chain for the long term is more important than short-term price fluctuations. The focus remains squarely on implementing traceability systems for EUDR and supporting farmer livelihood programs.

Conclusion: Navigating a New Market Reality

The International Cocoa Organization’s forecast of a global surplus marks a significant inflection point for the chocolate and confectionery world. It represents a shift from a narrative of scarcity to one of abundance, fundamentally altering market dynamics and the strategic calculations of every stakeholder. For manufacturers, it offers potential cost relief in a high-inflation environment. For traders, it signals a new, more bearish market sentiment.

Yet, for the millions of smallholder farmers at the base of the pyramid, it poses a direct threat to their already precarious livelihoods. The surplus shines a harsh light on the structural challenges that persist in the cocoa sector: farmer poverty, the need for sustainable practices, and the looming deadlines of transformative regulations like the EUDR. This new market reality is not a simple story of good news or bad news; it is a complex web of interconnected challenges and opportunities. How the industry navigates this period of surplus—balancing cost management with its commitments to people and the planet—will be a defining test of its maturity and its true dedication to building a fair and sustainable future for chocolate.