Cocoa Prices in Perspective

The recent increases in cocoa prices–the thirty year high in July for example–mask what has been, in effect, a secular decline in cocoa prices adjusted for inflation. Author Thomas Lines finally put numbers to something I’ve known for some time. When observers speak of all time high cocoa prices, they simply compare current prices, that is, prices listed 30 years ago and today without taking into consideration inflation.

I have tried in the past to calculate the impact of inflation on cocoa prices but–not being an econometrics geek– did not know what measure of inflation to take. I tried the U.S. price deflator but figured that this was not really very accurate as it did not measure inflation experience in the developing world.

Thomas Lines has figures out a way to take inflation into consideration. He compared average prices for 22 commodities for 2005-2008 with the prices for 1978-80 and deflated the current prices using the index of developing countries’ export prices.

The picture varied quite a bit across the spectrum of commodities. Oil and some metals increased over that time period but most food commodities declined. The real prices for coffee, cocoa and sugar have declined by more than half. Coffee came in at 37 percent of its 1978-80 value, cocoa at 35% percent and sugar at 44 percent.

In the meantime, the prices for fertilizers and pesticides have increased dramatically. Phosphates, for example have increased a real 46 percent. So while chocolate makers lament the high prices and pass on increases to consumers, the picture for cocoa farmers is radically different. Farmers receive only 37 percent of the value their fathers received 30 years ago buy pay 46 percent more for inputs. No wonder that young people are not thinking of cocoa farming as a desirable career.

A personal note: I’m writing this from the Newcastle, UK, airport lounge waiting for my connecting flight. For the next couple of weeks, I’ll be in Germany and the UK.

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