I’ve been getting questions on a daily basis about what is happening in the cocoa market and how I see things so today’s Ask the Alchemist is addressing as many of them as I can with no one guiding question other than What the Actual Fuck?
All markets are built upon the backs of slave labor....until they aren’t
That is one hell of a statement, isn’t it?
Since we are just about to talk about the cocoa market, prices and how we move forward, I think that is a profound comment to set the stage of conversation.
Many of you may be unaware but the cocoa industry is going through some pretty major price upheavals. Commodity prices are up a staggering 300%...nope, 350%....damn, hang on....over 400% and it is changing radically on a daily basis. In our specialty world of cocoa, we have not had to pay attention to it. The fair prices we pay are so much more than commodity prices that it has been uncoupled. With the huge swing up though, the two prices have ended up crossing and the ripple effects are like nothing I’ve seen in 20 plus years doing this.
What do we know?
The whole damn problem is my crystal ball is broken and I would be guessing if I told you I had some great insight into what the future holds. What do we know? We know Africa is having droughts and fires that are massively impacting cocoa crops. Whole crops are being lost. That seems to be the primary driver in the commodity price going up, but to be honest, I’m mostly parroting what I’ve heard. I’ve also heard a bunch of people using a lot of words to say not a damn thing. I’ve spent a few hours reading, watching folks talk and attending virtual meetings and to date, I’ve not come away with anything I can really tell you....except prices have gone up and everyone expects them to continue to go up in the near future. Just so you have the benchmarks, a year ago prices on the commodity market were around $2000 per metric ton. Currently they are over $6000...nope that was last week, yesterday was $8115 and more than one person has opined it could reach $10,000 per ton.
How does This affect us?
BTW, by us, I mean mostly those in the business of chocolate but it really applies to anyone that cares about chocolate and the people behind it.
There are many situations where contracts are in place that growers are paid a set amount over commodity prices so even though beans that are here in the states were not purchased at these new rates, suppliers are having to watch their cash flows to make sure what they are selling now will allow them to buy the next crop. In short, the only real way to do that is to raise the price of what you have in hand. And it seems to be a viscous circle.
Add to that a piece of news I received today. The stores of conventional Ghana (including the Rain Forest alliance source we used) are gone. The big boys have bought them up and the cupboard is bare. More than that, with all of the drought in Africa, it is estimated that there is a 500,000 metric ton shortage of cocoa out of Africa. That is over 1.1 billion pounds folks. It is no surprise our little trickle of cocoa went away. Although no one is saying it, I suspect Ivory Coast could well be next, being the next largest producer and the next cheapest bean. It is basic supply and demand; as supply goes down, prices go up and it loops higher and higher until the bubble bursts.
I’ve not seen many people talking about it but I’ve seen the stirring of these price increases since Covid kicked our ass. So many people think everything is back to normal but I have not seen the old normal since this time 2020 and I doubt we ever will again. Here in the USA people realized work was not all there was to life and we saw a swell of wages as people refused the pay they were given (yes, due to government assistance in part) and I’ve seen that same sentiment stirring around the world. Remember that opening comment? Shit is getting real and things are changing.
What else do I know? For the first time in 20 years I’m having to do what I described up above and price items based on what I might have to buy them for in 4 months, not what I bought them for. I’ve recently increased our cocoa butter prices because my cost went up nearly....nope, OVER 100%. On the wholesale side that meant I was selling blocks of cocoa butter for 30% less than I could buy its replacement for. That is not a recipe for success.
Some of this might come off as justification as to why I’m raising prices (I guess I am) but I need to be as transparent as I can about it. I’m so not one of those people making a money grab just because I can. Chocolate Alchemy has run in the red for the first time in 20 years, two years in a row. This is because I kept trying to absorb costs so you didn’t see a price jump. But, DUCK, you can’t run a sustainable business that way.
All markets are built upon the backs of slave labor....until they aren’t
I wholeheartedly believe we are seeing the very stirrings of that sentiment. That is one of those indefinable reasons that is going to keep cocoa prices from ever going back to where they were. Mind you, I could be wrong, and just like many folks here said they were never go back to work for what they considered an unfair wage, when you are faced with basic survival you reevaluate what you are willing to do and put up with.
After some soul searching and thinking about what Chocolate Alchemy does and why I do it and I have a plan that goes to the heart of why I do what I do.
In a nutshell, I started Chocolate Alchemy to allow people to make chocolate at home. I also moved into helping small and medium businesses follow their dreams. As a small business I’ve recognized two main challenges to doing things as I’ve always done them. One is how to price equability and the second is how to buy what I need with limited capital.
Here goes some more of that transparency that much our industry prides itself on.
Shopify, our eCommerce platform, raised our rates last year (I suggest you sit down) a staggering 350%, literally doing something they said they would never do. They started skimming right out of our bottom line. I absorbed that. I’ve given my employees cost of living raises plus extra, every year because they are people with families and responsibilities and it is the right thing to do. I absorbed it. I didn’t give myself any raise and actually took a cut in pay because I’m making it ok, and they need it more than me. Duck, this I sounding like I’m shooting for some type of accolade but that isn’t my intent. It is just transparency as I know how to do it.
And so we come to the last few months as I’ve seen crop after crop delayed. You’ve probably noticed our selection is smaller. I’ve seen steadfast origins go up 20-45%.....and I just can’t absorb it any more and keep us sustainable. I’ve spent the last week pouring over reams of data trying to determine what in the world I could do about prices. I think I have a viable proposition and I’m telling you what it is so have an inkling why you are seeing new prices. Consider it a peak behind the curtain in hopes you help it become a self fulfilling prediction.
I’ve had a pricing equation in place for 20 years based off some multiplier of the cost of the bean and it worked great. Recently thought it has started spitting out some....uncomfortable numbers. You might not have even noticed....probably because I saw them and arbitrarily nudged them down as the offended me. Last week I input the costs for the recent crop of Uganda Semuliki and it spit out a price of over $22/lb for roasted nibs and I was stuck. I couldn’t just reduce that price and I couldn’t use that price.
What I did instead was to scrap ALL my equations and start from the basics.
Broad Strokes and new math
I mentioned I recognized I was finding it a challenge to meet the minimums required of my vendors when prices had doubled. Sure, I could pass that cost along, but I didn’t have the cash to get the product to sell.
I figure if I have those issues, then I suspect you folks have them too and my solution was to make the smaller purchases more affordable. In times past, you drop prices as people buy more but said a different way, you charged more for smaller purchases and in a time where people can only afford to make smaller purchases due to cash flow, I find that....not right.
So our new pricing is aimed at helping people make smaller purchases sustainable instead of penalizing people for not having money.
I’ve adjusted our pricing to focus on labor, meaning the money you pay, goes to my staff more than the company in general.
I’ve reduced our margin on whole raw beans. I wish I could say the prices dropped but I can’t. What I can say is raw beans are barely going up because there is minimal labor. Consider this incentive to buy those.
I’ve dropped the subtle price savings I’ve had for years as you go from 1 lb to 2 lb to 5 lb. We are kind of in triage and it is now straight across the board. 1 lb costs $10 and 2 lb costs $20 instead of $18.95. #transparency. You are not longer being penalized for buying less because you can’t afford more.
I’ve aligned our per pound roasting and winnowing charges to meet employee wages, with a buffer to give them raises in the near future, without raising your prices. That translates to higher prices to you where actual humans are doing the work for you.
I’ve lowered our margin on wholesale orders, just barely covering costs on bags and pallets. We are not putting in sweat, time and tears, so you benefit. The cost of one bag will be 1/8th the cost of a pallet of 8.
On large wholesale roasted and nib orders, the prices are a tad higher, as tough as that was to do, but I care about my employees and if I can’t sustainable pay them, we all lose. But I’ve drilled down to actual costs and the new prices are (duck, I hope) sustainable.
What should you do?
Adjust. Cope. Accept. Don’t panic.
I’m not here to tell you what to do, yet, here’s some advice you might want to consider.
Do some math folks.
Stop looking for the cheapest prices as after you have done the math, if your business is viable, you’ll see the cost of goods isn’t the main driver of your expenses.
Look for the bean that works for you and those that are producing it.
Just because your bean price doubles does not mean your chocolate bar price has to double.
Don’t over extend yourself. Buy what you can afford and don’t buy because of FOMO. People go bankrupt that way.
Buy with intent. Your dollars and support matter. If you actually care about the people behind your supply chain then buy with that in mind. And if your customers actually care about those things, you’ll be fine.
Look at blends. I know why I started Chocolate Alchemy and why I focused on single origin. It was because it supported individuals. Unique flavors were a bonus. Of course they are important, but try to not to get caught up in the romance.
Question your assumptions. Why are you fighting so hard for $50 less on a bag of beans. Or even $100. Do the math and see how prices affect your end product. And don’t forget the Iron Triangle of Anguish. Why are you assuming your customers won’t accept a price increase?
Pricing should run from costs to sales price, NOT the other way around.
Do you really want to support the lowest price that fails to support the bottom rung?
It is belt tightening time folks. Time to winnow away what doesn’t matter and focus on what does.
Many of those core values are my relationships to you, my staff and the people down the supply chain. Making ends meet is also important. We are doing this for profit. That isn’t a sin. Greed is a sin. Slavery is a sin. Sustainability is not a sin. If I under price myself and my staff and go out of business, who am I helping?
That was a lot.
What can you do?
I’m going to leave you on a couple actionable and transparent items.
I mentioned Conventional Ghana is gone. So be it, spilt milk and all that. No crying.
I’ve had on the back burner another Ghana source. Being a single origin, and not a blend of an entire country, it doesn’t have that super predictable flavor of Ghana we know. I’ve met the head of the coop, and he is a great mate. He attended my roasting seminar last year. I want to support him (Lesley is his name) so I’ll be offering up those beans in short order. Relationships matter. Check it out. Kome Three Mountains Ghana.
On an even more actionable item, I’ve taken down our wholesale cocoa butters. For business reasons I need to keep it to retail so I can spread the love around there. I’m not 100% sure when I’ll be offering it again wholesale to the public because the minimum purchase price is not insignificant. But what I can and am going to do is make it so you folks out there are not in my position of not being able to by what you need in smaller amounts. And we are going to do that by working together. I mentioned cocoa butter prices are going crazy and changing every day. It is up 10% from 3 weeks ago and 100% from 6 months ago but I’ve locked in a price.
If you want to support me supporting you making sustainable purchases, you can find it here. Natural Cocoa butter 55 lb Pre-Order. When 30 cases are ordered, I’ll pull the trigger. I’ll be sending out an e-mail to wholesale customers that are subscribed to that mailing list with a few more details.
To wrap this up I want to emphasize change is inevitable and these massive upheavals will eventually settle down. My advice is to keep on keeping on. It’s what we do here. Beans selections are going to continue to be a little tighter. Prices will be higher, but they are fair and equatable for everyone. As sacrilegious as it might sound, don’t forget chocolate at its heart is a luxury item and we all can’t have such items all the time.
To get a tad more philosophical, not unlike the shake up and settling in many of us did during Covid, overall I think this shake up will be for the best. We get to rediscover what really matters and what we only had thought matters. I personally believe what matters will win out in the end.
Be well and kind to each other out there. You matter to me. If I can help you out, especially if you are trying to help someone else, please don’t hesitate to reach out and ask. We are all here for each other.