EU's New Deforestation Law Threatens to Push Chocolate Prices Even Higher
A new European Union law aimed at curbing deforestation linked to cocoa production is threatening to further increase chocolate prices, already at record highs due to supply shortages and surging demand, according to a report by the Wall Street Journal.
The EU regulation, set to take effect on December 30th, mandates that chocolate makers selling or producing within the bloc must demonstrate that the cocoa they use was not grown on land deforested since the end of 2020. This means each batch of cocoa entering the EU will need to be traced back to the specific farm where it was harvested using GPS coordinates.
"Starting from Dec. 30, chocolate makers that sell or produce in the EU will have to show that the cocoa they use wasn’t grown on land cut from forests since the end of 2020," the Wall Street Journal reports. "In practice, it means that each morsel of cocoa that makes its way into the bloc will need to be linked to the GPS coordinates of the farm where it was harvested."
Ivory Coast, the world's largest cocoa producer, is racing against time to map its estimated 1.55 million cocoa farms, with an October 1st deadline looming. While significant progress has been made in mapping efforts, an estimated 300,000 farms still need to be accounted for.
The new EU law has created confusion and logistical challenges for cocoa farmers, industry groups, and government regulators. Existing mapping initiatives lack a central database, and the required level of detail for GPS coordinates is more stringent than what was previously used.
The EU's deforestation initiative comes amidst a period of already high cocoa prices, driven by supply shortages caused by adverse weather conditions and disease outbreaks in West Africa, the source of 70% of the world's cocoa beans. Hedge funds and other speculative investors have also contributed to price increases by betting on continued supply constraints.
"Prices for cocoa recently touched a record high of nearly $11,500 a metric ton on the futures market in New York, about four times as high as they were a year ago and more than double the previous record of about $5,400, set in 1977," the Wall Street Journal reports.
Chocolate companies have already announced further price increases, adding to the significant price hikes consumers have experienced in recent years. Industry experts warn that the EU's new deforestation law, if not implemented smoothly, could exacerbate existing shortages and keep prices elevated for the foreseeable future.
"This is the Titanic heading towards the iceberg," said Edward George, founder of London-based Kleos Advisory, which advises investors on African commodities markets, to the Wall Street Journal. “There’s a full-on crisis. Prices could remain painfully high.”
The situation highlights the complex challenges facing the cocoa industry as it grapples with balancing sustainability concerns, supply chain complexities, and rising consumer prices. The success of the EU's deforestation initiative, and its impact on the global cocoa market, remains to be seen.