The Cocoa Conundrum
Word on the street has it that there will be a chocolate drought and the world’s supply of sustainable cocoa will run out in the next 3-4 years...
The Chocolate Drought
There are a few reasons why this unsavory situation in cocoa could come about.
Number one is political unrest in the Ivory Coast. Forty percent of the world’s cocoa trees are in the Ivory coast. It takes 5 years from seedling to first harvest for a cocoa tree to produce fruit. The number of certified fair trade cocoa farmers are only 1%.
Fair trade farmers have fled the West African country and their training programmes have stopped. Farmers face dangerous gangs in rural areas and have been scared off.
You can already see this affecting chocolate makers as cocoa prices are at a 30 year high.
Analysts are predicting we could soon hit $4,000 per metric tonne - close to a level last seen in January 1979 when we had the gold spike.
Maestro, the editor of Chocolates's blog and a leading mind in fair trade cocoa practice, said "chocolate producers are going to face the most trying time in history, the supply of sustainable cocoa is set to run out it is simple math."
Ivory Coast cocoa supplies are quickly dropping after many farmers have fled the country. The Ivory Coast is a complete no-go area for cocoa traders as it's too dangerous, to train new farmers and cut problems in the region is now impossible.
Of the world's 5.5 million cocoa farmers, only a minuscule percent have been trained and certified as sustainable fair-trade producers.
The certification is granted by specially-trained teachers, and the course runs for up to three years.
Political turmoil in Ivory Coast means both the farmers and trainers are fleeing the country, leaving a severe shortage of certified cocoa beans.
Even if the political situation improves, it could take several years for the number of certified fair-trade farmers to come back up.
According to Maestro, "manufacturers are fighting for the rest of the world's sustainable cocoa bean stock. Things will get a little dicey as producers start to fight over the last stocks," he added.
How do you invest in Cocoa? Here is a couple cocoa ETF's and a fund that are into it directly.
NIB: Dow Jones-UBS Cocoa Total Return Sub-Index ETN Profile
Description: The Dow Jones-UBS Cocoa Subindex Total Return is a single-commodity sub-index currently consisting of one futures contract on the commodity of cocoa.
CHOC: Pure Beta Cocoa ETN Profile
Description: The index is comprised of a single exchange traded futures contract, except during the roll period when the Index may be comprised of two futures contracts. However, unlike many commodity indices, which roll their exposure to the corresponding futures contract on a monthly basis in accordance with a pre-determined roll schedule, the Index may roll into one of a number of futures contracts with varying expiration dates, as selected using the Barclays Capital Pure Beta Series 2 Methodology.
"The Cocoa Fund" Global Commodity Group Costa Rica
Description: Are you interested in investing in something that defines success by achieving goals that are for the benefit of the environment and humanity? Global Commodity Group Costa Rica's fund invests long cocoa and cocoa farmland real estate with a focus on the worlds rarest and most expensive cocoa variety: Nacional #4 Their original approach to investment has some fringe benefits that move chocolate makers away from slave cocoa and promote ethical farming practices and sustainable non GMO cocoa varieties.