Tariffs on cocoa growers give edge to Europe’s chocolatiers

President Donald Trump’s tariffs on major cocoa-producing countries are giving European chocolate companies a competitive advantage over those in the US.

London cocoa futures for May delivery traded more than $500 a ton lower than the New York contract on Thursday. Tariffs could deal a blow to US chocolate makers, making the cost of supplies relatively more expensive than in other regions. Chocolatiers have already struggled as a supply shortage sent cocoa futures to record highs last December.

“It’s hugely problematic,” said Jonathan Parkman, head of agricultural sales at commodities broker Marex Group. The cost increase will likely be passed on to consumers, potentially hurting US chocolate demand and making the country’s chocolate exports less competitive, he said.

The arbitrage widened as May New York cocoa prices rallied as much as 5.8% intraday to the highest price since late February. The London contract for the same month, meanwhile, cooled as much as 4.9%.

Bloomberg

New York futures have so far “ignored the potential impact the new US tariffs could have on consumption, possibly because it has already confronted the prospect of reduced demand,” analysts at ADM Investor Services wrote in a note. That’s as prices have dropped from last December’s records, in part because of weaker demand.

Ivory Coast, which produces almost 40% of the world’s cocoa, will get a 21% tariff, Trump announced Wednesday. Other key cocoa suppliers like Ghana, Nigeria, Cameroon and Ecuador were also affected.

The market for beans isn’t the only one impacted. The US has closed a number of processing factories over the years and it now imports cocoa butter from Indonesia and Malaysia, which were hit with 32% and 24% tariffs, respectively.

Toblerone-maker Mondelez International Inc., which has a larger share of its business in Europe, gained as much as 4.3% on Thursday, putting it among the top gainers in the S&P 500. Shares of chocolate maker Hershey Co. rose as much as 2%. The companies didn’t immediately respond to a request for comment on the impact of tariffs.

Food company Conagra Brands Inc. mentioned cocoa as one of several commodities potentially affected by Trump’s tariffs that it is exposed to. Conagra owns hot cocoa brand Swiss Miss and Duncan Hines, which makes cake and brownie mixes.

Tariffs are likely to be mostly passed through to consumers, who have already been facing waves of price hikes amid elevated cocoa prices, said Bloomberg Intelligence analyst Ignacio Canals Polo. That means chocolate makers could see fewer sales, even as the overall hit to demand may not be big enough to curb the input costs of their raw cocoa, he said.

“You’re putting even more pressure on US chocolate consumers, so that only fuels the negative volume outlook for some of these companies,” he said. “The situation is quite bad, and it’s just adding more fuel to a fire that’s already quite big.”

While the cost of cocoa will be more expensive in the US, a silver lining for US chocolate makers could be the potential for lower chocolate imports from Europe due to tariffs, said Judy Ganes, president at J. Ganes Consulting. Still, there’s the risk of a European retaliation hurting US manufactured goods that go into the continent.

Cocoa grows in tropical weather areas in Africa, Asia and South America, which means US chocolate companies depend on imports. The crop grows mostly on small-size farms, in regions where farmers constantly struggle with low income.

“I find it hard to believe that they will not reconsider the cocoa example because it is not possible to grow cocoa in the US,” said Nicko Debenham, a sustainability adviser specialized in cocoa. “This is very punitive to poverty-stricken smallholder farmers.”