Shops have replaced chocolate Santas with Easter eggs on the shelves with nary a pause. Would that such predictability prevailed in the world of the sweet stuff under the packaging.

Cocoa markets are tightening; analysts believe we will guzzle more than we produce this year. Cote d’Ivoire and Ghana are imposing a $400-per-ton premium this year to sweeten the lot of farmers. These “Copec” countries produce two thirds of global supply. A meltdown impends.

Global stocks of cocoa, the starting point for chocolate, are falling towards 30%-35% of demand, as this year’s projected deficit triggers a further drawdown. Below 30% shortages loom. Big processors and chocolate manufacturers — the likes of Mars, Hershey and Mondelez and, especially, their smaller peers — start perspiring.

The last time the ratio dipped below 30% was in the 1980s. But the market stabilised serendipitously thanks to the fruits of a long-running capacity expansion. This time, chocolatiers need to cover the living income differential, for farmers who — not unusually in the skewed world of soft commodities — take just a sliver of the $100bn value in the chocolate market.

Living income differential economics are equally topsy-turvy. Cocoa trees take three years to grow, a big lag for a supply response and a dangerously long one for wannabe farmers in a part of the world not known for its political stability. Yet the living income differential has already goosed futures markets. These are pricing in a premium of £200 to £500 a ton, up from a historical £40-£90 for the two countries, according to commodities group Marex Spectron.

Chocolate is a bittersweet product, its sugar rush tainted by child labour and, more recently, its role in deforestation. Like other foodstuffs, it is at the mercy of the weather and pestilence; unlike the others, its yields have barely budged in decades. The living income differential risks playing havoc with confectioners’ hedging strategies and boosting the attraction of neighbouring West African producers to confectioners.

These are unintended consequences of a well-meaning push to reduce inequality. But they are as foreseeable as the January onslaught of Easter eggs. /London, January 22

© The Financial Times 2020

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