Major cocoa plants in Ivory Coast and Ghana have halted or reduced processing due to an inability to purchase beans, potentially leading to a surge in chocolate prices globally, Reuters reported citing four trading sources.

Chocolate manufacturers have already raised prices for consumers in response to three years of subpar cocoa harvests, with a fourth anticipated in the two countries that collectively produce nearly 60% of the world's cocoa.

Cocoa prices have surged over the past year, reaching multiple record highs and more than doubling in value.

"We need massive demand destruction to catch up with the supply destruction," Tropical Research Services' Steve Wateridge, a world expert on cocoa, said as quoted by Reuters.

Chocolate manufacturers are unable to produce chocolate directly from raw cocoa and depend on processors to transform beans into butter and liquor suitable for chocolate-making. However, the processors claim they cannot afford to purchase the beans, the report highlighted.

Transcao, a state-controlled Ivorian bean processor, disclosed that it had ceased purchasing beans due to their high prices. Although the company stated that it was still processing from existing stock, it did not specify the capacity at which it was operating, as per the report.

374,000 ton imbalance

According to two industry insiders who preferred to remain anonymous, the plant is currently operating at minimal capacity. They requested anonymity as they were not authorized to discuss the matter publicly, as per the report. One of the sources indicated that additional major state-run plants in the top cocoa-growing nation, Ivory Coast, could also face closure in the near future.

The two aforementioned sources also revealed to Reuters that even global trader Cargill faced difficulties in sourcing beans for its primary processing facility in Ivory Coast, leading to a temporary cessation of operations for approximately a week last month.

Meanwhile, in Ghana, the second-largest cocoa producer, the majority of its eight plants, including the state-owned Cocoa Processing Company (CPC), have experienced repeated suspensions of work, lasting several weeks, since the start of the season in October, according to two separate industry insiders. The CPC stated that it is currently operating at approximately 20% of its capacity due to the bean shortage.

The International Cocoa Organisation (ICCO) anticipates a 10.9% decrease in global cocoa production to 4.45 million metric tons this season. As processors grapple with bean shortages, grindings - a measure of demand - are expected to decline by 4.8% to 4.78 million, resulting in processors supplying less butter at higher prices to chocolate makers, who subsequently pass on the increased costs to consumers.

The supply-demand imbalance is projected to result in a deficit of 374,000 tons this season, a notable increase from the 74,000-ton deficit observed last season, as reported by the ICCO.

The ICCO anticipates that global cocoa stocks will decline to their lowest levels in 45 years by the end of the season. Wateridge of Tropical Research suggested that the cocoa market could experience another deficit next season due to the severity of bean disease in West Africa. Notably, the market has not witnessed four consecutive years of deficit since the late 1960s, according to ICCO data.

Read next: Savage capitalism; not-so-sweet Nutella exposed