Ebola Highlights the Risks of a Global Chocolate Supply Chain

While Ebola itself is unlikely to travel to the United States any time soon, Ebola represents a significant threat to the global supply chain that may start to hit your pocketbook.

Liberia, Sierra Leone, and Guinea represent the epicentre of the outbreak, and recent strife has seen the borders closed and flights halted from neighbouring Côte d’Ivoire over the last several months.  To date, the Ivory Coast has had no confirmed infections, but expectations are that the disease will continue to spread and may make the jump over the border in the next few months.

Source: Wikimedia Commons

While the economic toll of the virus has been calamitous for the local populations in the three most stricken countries, they are by and large isolated from much of the West.  All three are post-war economies whose exports are largely based around agricultural trade with their neighbours.

Côte d’Ivoire also suffered a civil war in 2011, but despite its political upheaval has been one of the success stories of modern Africa. It is the fourth largest exporter of goods in sub-Saharan Africa, and, potentially more worrying for chocolate lovers, is the world’s top producer of cocoa beans.  Together with its neighbour Ghana, the two nations represent over 55% of world production of the bean.   South America, by comparison, only represents a little over 10% of the globe’s chocolate.  This means even the slightest disruption in farmers' ability to bring cocoa to market could have massive ripple effects for chocolate across the world.

Country	Amount produced	Percentage of world production
Côte d'Ivoire	1.23 million tons	34.7%
Indonesia	489 thousand tons	13.8%
Ghana	746 thousand tons	20.6%
Cameroon	220 thousand tons	5.9%
Nigeria	210 thousand tons	5.9%
Brazil	165 thousand tons	4.7%
Ecuador	130 thousand tons	3.7%
Malaysia	32 thousand tons	0.9%

With ebola continuing to spread unabated, the risk for infection and its impact to the Côte d’Ivoire economy has the futures market for cocoa skyrocketing.  According to this morning’s LA Times, hedge funds are jumping into the game and prices have been increasing for 6 straight months, the longest such streak in over a decade. 

Prices are not quite to the peak hit in early 2011, but this kind of  run-up in prices on the wholesale will soon begin to make its way to the retail sector, meaning that next bar of Dairy Milk could soon set you back quite a bit more than you expected.  This will be something to keep an eye on, as many of the major packaged food companies (Nestle, Hershey, Mondelez) have large chocolate businesses that could be at risk.  Even in the last few years we have see what coffee prices have done to their bottom lines - will chocolate be the next "ugly duckling" to drag down sector growth?  

Investors may need to start keeping much closer tabs on the virus if it begins an eastward expansion over the coming months to avoid unnecessary exposure to what appears to be a huge spike in prices.  It all goes to show that when it comes to devastating diseases like Ebola, in the interconnected modern world there's no such thing as an isolated outbreak.