When Chocolate Is An Elasticity Story

We can thank the Republic of Côte d’Ivoire for chocolate:

But they are also one reason for rising prices.

Chocolate Prices

The price of chocolate starts with the cocoa bean crop.

First Côte d’Ivoire’s weather was too wet and then it became too dry. Next, yields sunk further because of black pod disease and older trees past their prime. One prediction suggests an 11% production drop. Then, perpetuating the price trajectory, speculators are further boosting cocoa futures. During the past year, cocoa bean prices went up by a whopping 150%.

Looking ahead, the industry expects the amount we will demand to exceed the quantity of global cocoa production by as much as 330,000 metric tons. Others though predict a larger gap.

The cocoa futures (what people will pay on a future date) are 42% above their previous high in July 1977.

When the cost of production goes up, candy bar size goes down. Tweaking recipes, producers use cheaper ingredients. In 2016, to lower costs, Toblerone even increased the space between the grooves in its candy bars:

Last year, Hershey relied on price increases to compensate for rising costs, Continuing, now, they raised the price of grocery items like syrup and chocolate chips. After thriving during the pandemic with consumers eating more chocolate at home, Hershey recently told investors that it is selling fewer candy bars. Similarly, no longer expanding its grooves, the maker of Toblerone (Mondelez) said it will be boosting prices (and perhaps shrinking sales).

Our Bottom Line: Elasticity

Hershey’s reduced sales should activate candy makers’ elasticity alarm bells.

If price changes a lot and the quantity we buy remains almost the same, as with medication, then the quantity we demand is inelastic. By contrast, if price swings have a big impact on what we buy, then our response is elastic. With chocolate, stuck at home during the pandemic, I suspect we displayed inelasticity. We wanted our sweets and price had little impact.

Since then, with life back to normal and higher food prices taking a bigger slice of our food budget, many of us are aware of rising chocolate prices. Buying less of a name brand and more substitutes that are cheaper, we’ve entered elastic territory.

My sources and more: To read more about cocoa beans, WSJ and The Washington Post are a good place to start. But instead, I liked reading about the science of chocolate grooves. Then, for still more, this is the Toblerone story.