Ebola has largely been confined to Sierra Leone, Guinea and Liberia, which produce relatively smaller amount of cocoa. But Ivory Coast shares borders with these countries and the threat of the disease impacting the transportation has the world worried.
Before cooling down, prices for the key chocolate ingredient have surged 10% in september, settling just shy of the highest level in more than three years on Sep. 24th on mounting concerns that the outbreak will reach the Ivory Coast or Ghana, which produce about 60% of the world’s cocoa. No cases have been reported in either country. But Ivory Coast shares a poorly policed border with Liberia and Guinea, two of the countries hardest hit by Ebola.
Since the beginning of the current Ebola outbreak at the end of 2013, there have been more than twice as many as all previous incidences combined since 1976. The World Health Organization forecasts that the number of cases could rise from under 6,000 in late September to more than 20,000 by early November.
Hedge funds have raised bets that cocoa will soar even more after it completed the longest series of monthly gains in 12 years. With prices for ingredients from hazelnuts to milk also rising this year, the rally has already squeezed profitability at Nestle’s chocolate division, said Bank Vontobel AG’s Jean-Philippe Bertschy.
The actual supply numbers do not yet provide evidence of a shortage. The International Cocoa Organization, while noting that demand is strong due to improving economic conditions in much of the world, forecasts Ivory Coast to break its 2010/2011 record of 1.511 million tons during the current growing season, while noting favorable weather in Ghana. Overall cocoa world production is estimated at 4.35 million tons, up 10% from the previous year’s growing season.
But just this nervous speculation and investment fluctuation shows how a deadly epidemic can cripple commodities markets as well. Ebola could also pose a similar threat to gold production in other West African countries which, so far, have not been hit by the disease.
“If prices rise at a greater rate, chocolate manufacturers will pass the increase onto consumers,” said Andrew Rolle of Juremont, a major Australian importer of chocolate ingredients. “It’s a fragile market there at the best of times. There could be labor issues with the cocoa farmers in the fields, political issues, transport issues with accessing stock through ports.”
Any interruption to cocoa exports would be devastating for Ivory Coast, which is heavily reliant on the income generated from agriculture. A disruption would also quickly radiate through the global market, where record demand for chocolate is squeezing supply. Cocoa futures are up 20% this year and hit a three-year high last month.