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New York City isn't known for its cocoa beans.
But Pennsylvania-based Hershey has taken to New York's futures market to procure its cocoa supplies after West African nations imposed stiff premiums on their beans.
From West Africa To Wall St.
In the past, chocolatiers such as Hershey have bought cocoa primarily in the physical market (using traders and intermediaries to buy directly from the source).
African nations produce over 75% of the world's cocoa but capture just 3% of global chocolate revenue, according to the International Cocoa Organization. Last year, leaders from Ivory Coast and Ghana set out to remedy those figures by creating their own "OPEC for cocoa":
- The nations created a $400/ton "living income differential" premium on cocoa sales to support their farmers (which went into effect last month).
- That's on top of the "country premium" buyers already pay the two West African nations for their highly regarded beans.
But the rising costs coupled with falling chocolate demand during the pandemic has players like Hershey looking for alternatives.
That's where Wall Street comes in. The futures market for cocoa is typically utilized for buyer hedging or hedge fund speculation, not procuring physical beans. But beans sourced from the exchange don't incur the living income differential premium, saving buyers hundreds per ton.
And Hershey dove right-in, scooping up heaps of futures contracts and sending prices up 20% last week alone.
Premium cocoa purveyors including the Ivory Coast and Ghana have threatened to suspend their sustainability programs if buyers don't pony up for the new premiums.
The tactic has previously gotten the attention of chocolate makers, who are wary of consumer backlash.
While he didn't point any fingers yet, Ghana Cocoa Board CEO Joseph Boahen Aidoo said he is prepared to "name and shame" bean buyers that aren't following through with their promises to contribute to farmer livelihood.
Heads Up For Hershey Fans: Cocoa beans sourced from the exchange don't have the same quality guarantee as physically sourced beans, in case your chocolate tastes off this holiday season.