COVID-19 and Its Impact on Cacao Demand: A View from Peru
This post is written by Jose Iturrios Padilla, Peru Cacao Alliance
Before the COVID-19 crisis, global demand for cacao was growing at an average annual rate of 2 percent (2011-2019), reaching about five million tons per year, globally. Peruvian cacao production grew 10 percent in 2018 and 12 percent in 2019—over 123,000 tons of dried cacao beans have been produced in the last year. A staggering 87 percent of this cacao has been exported in the form of cocoa beans, cocoa butter, cocoa powder or chocolate. With this growth, exports in Peru reached $294 million in 2019, a 10 percent increase over 2018 export numbers.
The COVID-19 crisis broke the growth pattern in cacao prices caused by steady increases in chocolate consumption, particularly in Asian countries. Cacao demand in Asia grew more than 8 percent in 2019 (versus the 1.3 percent world average), and projections for 2020 have predicted a deficit in the global chocolate supply between 30,000 to 50,000 tons. Following this pattern, Free On Board (FOB) prices of cacao at the end of February exceeded $2,800 per ton, which led to field prices of 8-9 Peruvian soles per kilo of dried cacao.
As the COVID-19 crisis moved to Italy and the rest of Europe, the demand for cacao changed radically. The quarantines in Italy, Spain, France, Great Britain and other countries have reduced consumption and strongly impacted European demand for chocolate and cacao from processing plants. This has pushed down prices for almost the entire month of March: the lowest price recorded on March 20 was $2,197 per ton, followed by four consecutive days of increasing stability at the $2,266 price point (which translates to field prices of about 6.5-6.8 soles per kilo).
Impact on Local Cacao Orders
The uncertainty generated by the COVID-19 outbreak in March has led to the suspension of cacao orders in the field. Cooperatives and exporters did not want to risk making commitments in a situation of falling prices and preferred to put their local orders on hold. Our advice for producers is not to panic — and continue to harvest, ferment, dry and store dried cacao in a cool place while the market uncertainty subsides. We do not recommend selling at this time, as some buyers may try to take advantage of the situation and pay as little as five soles per kilo.
How the Cacao Market Can Evolve
It is important to note that the affected demand for chocolate in key countries, like those in Europe, is temporary. How much time will it take to reactivate demand? This will depend on how long it takes to resolve the COVID-19 pandemic. The optimistic recovery estimate is a timeline of three months, while the general opinion is six months. We are currently in the most critical stage and believe that economic activity will begin to return to normal in one or two months and the demand for chocolate will return as well.
The situation in Asia is unique. China has managed to control the pandemic and shows that it will return to economic normalcy in a few weeks. South Korea, Taiwan and Singapore have also controlled the crisis and should return to normal economic activity in a few weeks. In recent years, Asia has become a driver of chocolate consumption, meaning that if economic stability is restored, cacao demand and prices will be positively affected.
In the United States, the situation is uncertain since each state is taking different measures. California, for example, has ordered strict quarantine to combat COVID-19, which is one of the largest consumer and producer states of chocolate in the United States. In New York, another center of American chocolate consumption, strong measures are being taken to fight the spread of the virus.
Latin America is not a large chocolate consumer, but both Mexico and Brazil (the largest chocolate consumers in Latin America) are undecided about what measures they will take to combat the pandemic, so we predict it will take longer for them to overcome this.