The environmental impact of cocoa

In this article, Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026) explains what the environmental repercussions of the production and supply of cocoa are.

Introduction

The carbon footprint is an which measures the anthropogenic greenhouse gas emissions, i.e. a measure of the emissions that can be attributed to that human activity. Unfortunately, chocolate produces a lot of green gas emissions. Growing and harvesting cocoa, making chocolate, transportation, packaging: each stage of production produces greenhouse gases.

Figure 1 gives the process flowchart for cocoa production designed by Sucden (a French trading company specializing in soft commodities and mainly in sugar).

Process flowchart for cocoa production

Source: Sucden.

Global cocoa production therefore has a significant environmental impact. However, chocolate can also influence the climate and deforestation. Indeed, the manufacture of this product has a negative impact on the environment. Certain prints also have an impact on cocoa plantations.

Cocoa’s carbon footprint

It seems fair to say that chocolate’s carbon footprint is far from acceptable. A kilo of chocolate has a carbon footprint of around 13.7kg of CO² (data from the Agribalyse database). The two factors that will influence the increase or decrease of this figure are either the type of chocolate, or its impact on deforestation. It means that some types of chocolates may need more transformation than others, which implies that there will be more chances to require some other products which have some influence in the green gas emissions.

Cocoa production is responsible for 70% of chocolate’s CO² emissions. All subsequent stages are included in the remaining 30%: processing from cocoa to packaging, addition of other foods and transport to the point of sale.

Most cocoa is grown using conventional agricultural methods such as pesticides, machinery and fertilizers. These processes are energy-intensive and directly produce greenhouse gases, with the result that agriculture currently accounts for around 20% of global emissions.

In the case of cocoa beans, there are also processing steps. The cocoa beans are first ground into cocoa powder, then the other ingredients are added:

• Cocoa per kilo consumes more greenhouse gases than cow’s milk for milk chocolate or white chocolate, mainly due to the methane associated with livestock farming.
• Sugar, palm oil (also responsible for deforestation), preservatives, etc. all contribute to the carbon footprint of chocolate.

The carbon footprint of chocolate is further increased by transport, as cocoa is grown only in countries located around the equator.

The current environmental problems of deforestation caused by cocoa

We have cleared areas of primary forest in Côte d’Ivoire to grow more cocoa. This country, which used to export the most cocoa in the world, has destroyed 90% of its forests in 60 years!

The primary cause of deforestation in West Africa is cocoa farming, which accounts for 70% of the world’s cocoa production.

Since 1960, Côte d’Ivoire has lost 90% of its afforestation. If the trend does not change, the entire Ivorian forest will disappear by 2034, according to some ecologists.

So, given all these problems linked to the production and delivery of cocoa to our market, it’s understandable that some people are reacting. For many specialists, chocolate is the symbol of our globalized system, which he does not hesitate to criticize: “The international cocoa-chocolate market today is the portrait of a capitalism at the end of its rope, locked in its own contradictions: the enormous amount of money invested and mobilized to maintain the levels of production and consumption necessary for the survival of the model completely paralyzes action and innovation”, he explains, painting a rather bitter picture of today’s market.

A glimmer of hope for the future

Even if the market seems to be ticking a lot of the wrong boxes, some people are still trying to change things.

In December 2022, a new European regulation was introduced to prevent the import of products derived from deforestation (the European Union (EU) deforestation-free regulation (EUDR)). . This applies to products such as coffee, cocoa, rubber and palm oil.

By requiring the companies concerned to guarantee that the products they export involve zero or negligible risk of deforestation, these regulations will certainly help the cocoa sector to become more responsible in the future, to the benefit of both producers and our planet.

Why should I be interested in this post?

Thus, we can see how much the process of production of cocoa a significant impact in our environment may have, be it with deforestation, but also with the process of supply chain itself.

Related posts

   ▶ Mathis DIALLO The cocoa production

   ▶ Mathis DIALLO The price of cocoa

   ▶ Mathis DIALLO Different types of chocolate

   ▶ Mathis DIALLO The Armarajo hedge fund’s corner in the cocoa market in 2010

Useful resources

Anna Gardner (07/05/2022) The Cocoa Industry: Its Environmental Impacts ClimaTalk

Sucden Products and activities – Cocoa

About the author

The article was written in July 2024 by Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026).

The cocoa production

In this article, Mathis DIALLO ((ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026) explains all the process of the cocoa production (cocoa grinding, types of cocoa).

Introduction

Despite a fairly complex process, cocoa production has continued to increase since the 1980s. In the early 2000s, the cocoa-producing countries as a whole were already producing around 2.9 million tonnes of cocoa.

Between 2000 and 2010, cocoa production even increased by 40%, reaching 4 million tonnes in 2010.

A very old crop

The first links between cocoa and mankind date back a very long time. At that time, cocoa was not cultivated intensively; cocoa trees grew naturally in tropical countries. Indigenous populations used to pick the fruits of the cocoa tree to eat the mucilage that surrounds the cocoa beans. It wasn’t until the pre-Columbian era that the Mayans and Aztecs began to process cocoa beans into cocoa paste, mixing it with other ingredients to make a chocolate drink, the ancestor of our hot chocolate!

Types of cocoa and origins

There are three main types of cocoa: trinitario, forastero and criollo.

However, they are not found in equal quantities around the world.

Criollo accounts for only 5% of world production. Its distinctive features are a light-coloured bean and a fruity, slightly acidic flavour, giving it the ability to produce a fairly fine chocolate. Its rarity makes it a much sought-after chocolate.

Forastero, on the other hand, is the type of cocoa most commonly found in nature, accounting for 80% of the world’s production. It has an earthy, woody flavour, and is used to make chocolate with an intense taste.

Finally, the trinitario, which accounts for around 15% of world production, is in fact a cross between the last two mentioned above. It has a fairly fruity taste with earthy undertones, which is why it is so popular with the general public.

These types of cocoa are mainly found in countries such as Ghana and Côte d’Ivoire, which are now the world’s leading cocoa producers.

The grinding process

Cocoa grinding is an essential stage in the chocolate-making process. It is the process of grinding roasted cocoa beans to produce chocolate liquor, which forms the basis of all chocolate products. Cocoa grinding may seem simple, but it is a complex process that requires specialised equipment and expertise.

Cocoa is ground in several stages: roasting, grinding and refining the cocoa beans. The duration of this process varies from a few hours to several days, depending on the equipment and the desired final product.

Roasting the cocoa beans is the first stage in the cocoa-grinding process. By removing excess moisture, the natural flavours and aromas of the cocoa beans are brought out through roasting. The beans are generally roasted for 10-30 minutes at a temperature of 120 to 140°C.

Once the beans have been roasted, they are cooled and ground to obtain cocoa nibs. The beans are then crushed to obtain a fine cocoa paste, known as chocolate liquor or cocoa liquor. Grinding takes several hours and involves the use of specialised equipment such as blade grinders, paddle grinders and conical stones.

The chocolate liquor is then refined to reduce the granulometry and give the chocolate more texture. Refining involves passing the chocolate liquor through a series of rollers that crush the particles to make them finer. This process can take several hours and involves specialised equipment such as chocolate refiners.

Conching is the final stage in the cocoa grinding process and involves continuously mixing and kneading the chocolate liquor at a controlled temperature. Conching improves the flavour and aroma of the chocolate, as well as its texture and mouthfeel. This phase varies from a few hours to several days depending on the final product desired.

Conclusion

In conclusion, despite a fairly complex process, cocoa production has continued to increase since the 1980s. In the early 2000s, the cocoa-producing countries as a whole were already producing around 2.9 million tonnes of cocoa.

Between 2000 and 2010, cocoa production even increased by 40%, reaching 4 million tonnes in 2010.

Today, production stands at around 5 million tonnes.

Why should I be interested in this post?

Understanding cocoa production is crucial to appreciating its economic, environmental and social impacts, as well as encouraging sustainable and ethical farming practices.

Related posts

   ▶ Mathis DIALLO The environmental impact of cocoa

   ▶ Mathis DIALLO The price of cocoa

   ▶ Mathis DIALLO Different types of chocolate

   ▶ Mathis DIALLO The Armarajo hedge fund’s corner in the cocoa market in 2010

Useful resources

International Cocoa Organization (ICCO) Summary of the process of transforming cocoa beans into chocolate

European Cocoa Association (ECA) Cocoa Story: The production process – from cocoa beans to semi finished products

About the author

The article was written in July 2024 by Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026).

The price of cocoa

In this article, Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026) explains why the price of cocoa may vary so much.

For a long time, the price of cocoa and the fluctuation of its price within the financial markets has been the result of a combination of factors, such as weather conditions (whether favourable or unfavourable), diseases affecting crops (they are not always present, may re-emerge at certain times), etc.

This situation has always raised concerns about the future viability of the cocoa industry and highlights the importance of sustainability and resilience in the global chocolate supply chain.

Evolution of cocoa price.

Source: Trading Economics.

Evolution of the cocoa market price : the drivers of the supply and demand for cocoa

Let’s start with the weather:

The major cocoa-producing regions, such as Côte d’Ivoire and Ghana, are confronted with often unpredictable weather conditions, including droughts and climatic accidents. It is clear that these phenomena can contribute to a reduction in production and therefore to a drop in supply on the world market.

In addition to difficult weather conditions, cocoa crops are also affected by diseases such as the swollen shoot virus. These diseases weaken crops and further reduce the production of cocoa beans for processing.

It’s important to remember that the world’s cocoa production is heavily concentrated in West Africa, particularly Côte d’Ivoire and Ghana. The slightest problem affecting these regions will have a real effect on world cocoa supply and therefore on market price volatility.

The role of speculation

Speculative funds can sometimes fuel price rises, with the latest financial crisis prompting hedge funds to position themselves on the commodities markets. The cocoa side of the NYSE or City is even more susceptible to speculation. Whether there is a shortage or a surplus, speculation is based on the actual causes of the physical market, but exaggerates the trends. In 2017, an overproduction of just 200,000 tonnes caused a 30% fall in the market price, leading to a speculative spiral. Today, the rise in speculation is at the root of this all-time record for cocoa prices. In recent months, financial operators have invested a record 8.7 billion dollars on the New York and London stock exchanges to speculate on a rise in cocoa prices.

So hedge funds are not directly responsible for the increase. They are based primarily on actual causes. Despite their massive injections of liquidity, the market no longer reflects the physical realities of cocoa.

Recent market development (2023-2024)

Figure 2 represents the evolution of the price of cocoa from 2023 to 2024 (USD/T).

Figure 2. Evolution of cocoa price (1923-2024).

Source: Trading Economics.

Background: The last record price was set in 1977 at $5,300 per tonne. It was broken in February 2024. Barely two months later, and defying all projections, the price of cocoa doubled to $10,600 per tonne on 15 April 2024. The following week, it reached $11,479. In one year, the price of cocoa has risen by 268%.

Explanation:

With Easter approaching, a time of year when people consume much more chocolate than usual (buying chocolate eggs), the price of cocoa is hitting record highs on the international market. The price of cocoa has just passed the 6,000 dollars a tonne mark, a rise unprecedented since 1977.

Worse still, on 27 March 2024, the price of a tonne of cocoa exceeded 10,000 dollars a tonne. This was unprecedented for the raw material of chocolate, to the point where Bloomberg noted that the cocoa bean was overtaking Nvidia at that point.

This is the third year in a row that the market has been in deficit, with harvests in West Africa down due to the vagaries of the weather, strong demand and speculation.

The gap between supply and demand is expected to rise to around 430,000 tonnes of cocoa in 2024 (around 8% of normal world production). It is therefore impossible for there to be enough for everyone at the end of the year, and some populations are likely to experience shortages of this product.

But a few weeks later, the price of cocoa ended up declining, and not without reason: 1) renewed rainfall in Nigeria led to a significant increase in production; 2) the Intercontinental Exchange (the main cocoa market) raised the margin on contracts, making it more difficult to find buyers or sellers on the market.

Recent events have largely confirmed the volatility of this type of product on the international financial markets, which is far too dependent on environmental hazards, the number of players on the market and financial market speculation.

Why should I be interested in this post?

It shows how much volatile may the market of raw materials be and enables us to understand better about the fluctuations of price of cocoa.

Related posts

   ▶ Mathis DIALLO The environmental impact of cocoa

   ▶ Mathis DIALLO The cocoa production

   ▶ Mathis DIALLO Different types of chocolate

   ▶ Mathis DIALLO The Armarajo hedge fund’s corner in the cocoa market in 2010

Useful resources

Trading Economics Cocoa

International Cocoa Organization (ICCO) Cocoa Market Report for March 2024

World Wide Chocolate Cocoa Cost Soars to Historic High – Why is Cocoa’s Cost Rising? | April 20244

About the author

The article was written in July 2024 by Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026).

Different types of chocolate

In this article, Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026) explains about the different types of chocolate.

Introduction

There are many different types of chocolate. Chocolate can be classified into different categories according to its colour, composition, uses, taste, price, etc. Nevertheless, the names of many products are subject to strict regulations, whatever its type or form (paste, bar, confectionery, etc.). For instance, it must contain at least 35% cocoa beans inside (according to the international standards).

Varieties of chocolate

Dark chocolate

The first chocolate to come to mind is often dark chocolate. The designation of dark chocolate is regulated. Chocolate must contain at least 35% cocoa beans to be considered chocolate.

Legislation requires a cocoa concentration of at least 43%, including 26% cocoa butter and 14% cocoa, to qualify as fine or superior dark chocolate. The terroir of the cocoa has a considerable influence on the flavour of dark chocolate. Dark chocolate lovers look for its sometimes bitter, intense and deep flavour.

It is possible to create different dark chocolates that are more or less intense or bitter by adding sugar or flavourings. Master chocolatiers can be creative and create innovative dark chocolates by adding other ingredients such as candied or dried fruit, for example, although the chocolate must have a minimum percentage to be considered a dark chocolate.

Milk chocolate, known as tasty and smooth

Taste is the first thing that distinguishes milk chocolate from dark chocolate. Milk chocolate is appreciated not only by children but also by adults because it is sweeter and less bitter than dark chocolate.

Milk chocolate is made up of :

• At least 30% dry, fat-free cocoa.
• At least 18% milk.
• 25% fat, including cocoa butter.
• At least 3.5% milk fat.

This type of chocolate can be found in the form of tasting products or ingredients for pastries. It is particularly interesting for creating gourmet desserts, especially at Christmas and Easter, because of its cocoa milk flavour.

White chocolate, a must for pastry chefs

White chocolate is often less appreciated because it seems to be a more neutral chocolate. Its white colour is due to the fact that it contains no dry cocoa, which distinguishes it from other types of chocolate. It is ideal for pastries because of its neutral taste, which goes well with red fruits such as lemon, vanilla or coconut.

White chocolate is made up of :

• At least 20% cocoa butter
• About 60% sugar
• At least 14% of milk

Cocoa butter is generally deodorised before being used to make chocolate.

In pastry-making, white chocolate is a precious ally. Cocoa butter captures flavours and can be used in a variety of flavours. It is widely used to make the insides of macaroons.

Blond chocolate

Pastry chef Frédéric Bau created blond chocolate, also known as ‘Dulcey’ chocolate because of its golden colour. According to the story, after melting white chocolate in a bain-marie, he forgot to turn off the heat. The chocolate was left to cook in this way for fifteen hours. The recipe has been refined since this discovery. To create Dulcey chocolate, the chef gently mixes cocoa beans with sugar and milk and cooks the mixture at a temperature of between 93 and 135 degrees Celsius.

Filled chocolate, tasty and delicious

Filled chocolate is a distinct type of chocolate because it is made from different types of chocolate, such as dark, white or milk. Filled chocolate is a type of chocolate with a chocolate exterior. This outer part can be made with any type of chocolate. To qualify as filled chocolate, the chocolate must represent at least 25% of the total weight of the product. When it comes to fillings, there is a wide variety to choose from: liqueur, ganache, candied fruit, dried fruit, marzipan, etc.

Eating chocolate

Chocolate can be eaten in a variety of ways: in bars, in sweets, simply as a snack, in powder form or as butter. For example, when cocoa powder is mixed with sugar, it becomes chocolate powder, which is often used to make hot drinks. Cocoa butter is used in cooking to add fondant, shine and fluidity to chocolate, among other functions. Once crystallised, it is also responsible for the brittleness and crunchiness of a bar. Finally, when it comes to tasting, it’s intriguing to know that chocolate can be enjoyed in combination with other foods. Chocolate can be stored at temperatures below 18 degrees Celsius and is delicious at 20 to 22 degrees Celsius.

Why should I be interested in this post?

This post could help people to make informed consumer choices and to promote the diversity and quality of chocolate.

Related posts

   ▶ Mathis DIALLO The environmental impact of cocoa

   ▶ Mathis DIALLO The cocoa production

   ▶ Mathis DIALLO The price of cocoa

   ▶ Mathis DIALLO The Armarajo hedge fund’s corner in the cocoa market in 2010

Useful resources

Investment Corporation of Dubai (ICD)

About the author

The article was written in July 2024 by Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026).

The Armarajo hedge fund’s corner in the cocoa market in 2010

In this article, Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026) explains the story of the hedge fund’s corner in the cocoa market created by Anthony Ward in the 2010’s, and its repercussions.

Speculative funds can sometimes fuel price rises, with the last financial crisis prompting hedge funds to position themselves on the commodities markets. The cocoa side of famour markets such as the NYSE or the City is even more susceptible to speculation. Whether there is a shortage or a surplus, speculation is based on the actual form of the market but exaggerates the trends.

Anthony Ward

Source: The Guardian.

The financial operation of the British hedge fund Armajaro

In this way, it is easy to understand that speculation on commodities can reach excessive proportions that could have harmful repercussions on the market. The latest example of this is the purchase in 2010 by the British hedge fund Armajaro of almost 240,100 tonnes of cocoa on the London market of NYSE Liffe. This is equivalent to 7% of world production, or 15% of global stocks.

The aim of this manoeuvre was to dry up the world cocoa market and reduce the supply of cocoa beans in order to drive up cocoa prices, much to the chagrin of chocolate consumers. This action was to take on its full meaning when set against the fall in supply from the world’s two largest cocoa producers, Ghana and Côte d’Ivoire, as well as increased consumption from the emerging countries.

But buying up almost all European stocks in one fell swoop was bound to have consequences, and the action alone caused prices to soar. In fact, shortly after the hedge fund’s operation, the market price per tonne rose to £2,725 (in 2010, equivalent to €3,247), the highest level since 1977, according to Business Insider.

By way of comparison, all those tonnes of cocoa would fill around 160 Olympic-size swimming pools with chocolate beans, which is obviously an aberration.

Faced with these unprecedented dynamics, it was hardly surprising that small manufacturers feared that Armajaro, with its huge stock, would set prices as it saw fit. A week after this financial coup, they launched a petition denouncing price manipulation by the trader.

The high-risk corner strategy

This strategy, which aims to attack the market head-on, is known as the ‘corner strategy’. This was not Anthony Ward’s first attempt at such a strategy. Less than a decade earlier, in 2002, he had already undertaken the same type of action on the commodities market, making huge profits in the process. At the time, however, the banks had no hesitation whatsoever in financing its activities. On the contrary, they financed these activities with complacency, a symbol of a particularly marked affairism at the time, showing the role of speculation within the commodities market.

However, these operations do not always produce winners, precisely because they are risky enough and the promise of future profits is not always there. This is somewhat the case here. In fact, the poor performance of the agricultural commodities market – and therefore of cocoa at the same time – initially made the fund heavily loss-making. Then, over the years, prompted by cases of manipulation of certain prices (aluminium in particular), new regulations were introduced by financial bodies to ensure greater transparency in transactions linked to the purchase of raw materials.

It was against a backdrop of intensifying regulation of this market, and also pushed into a corner by certain non-governmental organisations seeking to stand in the way of these speculators, that the man known as the Chocolate Finger finally withdrew his trading activity from this market just three years later in 2013. Eventually, the trader got rid of his cocoa, coffee and sugar trading arm.

Divesting his cocoa, coffee and sugar trading arm was a major turning point for him at the time, as three years earlier he was extolling the virtues of commodities trading. Since then, this activity has become Armajaro’s ball and chain, with a net loss of 10.3 million dollars in 2012 compared with profits of 24.3 a year earlier. That was the end of the empire.

Why should I be interested in this post?

Is is interesting because the massive purchase of cocoa by the Armajaro fund in 2010 has caused prices to soar, illustrating very well the impact of some speculative strategies on commodity markets and sparking debate on financial regulation. It has also affected a lot producers‘incomes and consumers’ costs.

Related posts

   ▶ Mathis DIALLO The environmental impact of cocoa

   ▶ Mathis DIALLO The cocoa production

   ▶ Mathis DIALLO The price of cocoa

   ▶ Mathis DIALLO Different types of chocolate

Useful resources

Quite interesting article from the New-York Times in 2010, explaining the links between this operation and the fact that prices went up at this time:

New York Times Trader’s Cocoa Binge Wraps Up Chocolate Market

Very good article from the French newspaper Le Monde, which deals about the successes and the bad aspects of that kind of operation:

Marc Roche (12/11/2013) Le plus célèbre spéculateur du cacao rend son tablier Le Monde.

About the author

The article was written in July 2024 by Mathis DIALLO (ESSEC Business School, Grande Ecole Program – Master in Management, 2023-2026).