Cocoa prices have skyrocketed in the past year, but the price of chocolate in stores stays the same. How is that possible?

Cocoa prices continue to increase, but if you went grocery shopping recently, you might have noticed chocolate prices have stayed surprisingly steady, sometimes even dropped. Curious about this disconnect, I decided to dig into the chocolate industry to uncover some of the financial incentives driving production, consumption, and figure out why these price hikes aren’t reaching the shelves.

Rising Cocoa Costs Amidst Ongoing Crisis

First, let’s address the current crisis. Cocoa prices have spiked dramatically since late 2023, hitting record highs. This increase is primarily driven by the spread of pests in cocoa farms, the destruction of plantations for gold mining, and the impacts of El Niño, a natural phenomenon that alters usual weather conditions.

Côte d’Ivoire, Ghana, Nigeria, and Cameroon, which together account for over 60% of global cocoa production, have recently experienced a decline in output. In Côte d’Ivoire and Ghana, where governments regulate cocoa prices, farmers have not reaped the rewards of rising international prices. Conversely, farmers in Cameroon and Nigeria, where pricing is more market-driven, are benefiting from the price increase.

In response to the shortfall in cocoa bean production, governments have raised the prices farmers are paid for cocoa and introduced measures including the suspension of futures sales.

Figure 1 measures the price changes that producers receive for chocolate and cocoa products made from cacao beans. Since 2020, these prices have increased by 180%. Meanwhile, the broader and less targeted Figure 2 tracks price changes for all products in the chocolate and candy manufacturing industry. This index has risen by 40% since 2020.

Financial Incentives for Cocoa Production

The making of cocoa is highly encouraged in the world’s biggest producers with tax and financial incentives. In Nigeria for example, Cocoa Processing is part of the permissible activities in Nigerian free zones. These are special areas where national regulations on production and trade are not fully applicable. Known by various names such as Special Economic Zone, Foreign Trade Zone, or Free Trade Zone, these areas encourage economic activity with financial incentives. Similar tax incentivized areas are used for the storage of precious art.

Another leading cocoa producer and exporter, Ghana, offers various tax and financial incentives in its free zones to encourage growth within the cocoa industry. These include:

• 100% exemption from direct and indirect duties on imports for production and exports from free zones.
• 10-year exemption from income tax on profits, with a reduced rate afterward.
• Full exemption from withholding taxes on dividends from Free Zones investments.
• Relief from double taxation for foreign investors and employees, provided Ghana has a double taxation agreement with their home country.

These multiple benefits are designed to encourage investment and growth within Ghana’s cocoa industry.

The world’s leading producer of cocoa uses a similar model. The Zones Industrielles de Côte d’Ivoire (ZIC) are public-private partnerships. These areas aim to promote manufacturing growth and process agricultural commodities, including cocoa.

Value Chain for Cocoa in Ghana

Flow of Chocolate Trade

Cacao is only part of what makes chocolate. According to Trend Economy, the top five largest importers of cocoa beans (whole/broken, raw/roasted) in 2023 imported more than 62% of the world’s cacao production, or $3.9 billion.

Top Five Cocoa Importers (2023)

In an insightful article about the cocoa industry, Govind Bhutada highlights a surprising truth: while cocoa beans are the essence of chocolate, their farming only account for 6.6% of the cost by the time a chocolate bar reaches the store shelf. The following graphic breaks down the share of each player in the cocoa supply chain.

What is considered store-ready chocolate?

The Food and Agriculture Organization of the United Nations [²] defines chocolate as primarily made from cocoa, along with butter, sugar, and milk. It must contain over 35% cocoa solids, with at least 18% cocoa butter.

Milk chocolate is made from cocoa, sugar, and milk, with at least 25% cocoa solids and 14% milk. In contrast, white chocolate contains cocoa butter, milk, and sugar, with at least 20% cocoa butter and 14% milk. Finally, dark chocolate must have at least 43% cocoa solids, including 26% cocoa butter.

Other tempting varieties include Gianduja chocolate, a smooth mix of cocoa and hazelnuts (32% cocoa solids, 20-40% hazelnuts), and filled chocolates or pralines, with at least 25% chocolate content.

Top Chocolate-Loving Countries

The largest cocoa producers and chocolate makers are not the top consumers of chocolate. In fact, major African cocoa exporters don’t even rank among the highest consumers. According to World Population Review data for 2022, the United States leads in total chocolate consumption, followed by the United Kingdom and France. However, on a per capita basis, smaller countries consume more chocolate daily. In fact, Luxembourg tops the list at nearly 30 grams per person, followed by Iceland and Montenegro, where people eat just under 20 grams per day. Note that the combined population of these three countries is only 1.7 million.

Tonnes of Chocolate Consumed (2022)

Grams of Chocolate Eaten Per Person (2022)

Maximizing Financial Incentives for Chocolate Lovers

Taxation on chocolate consumers varies between countries and comes in different forms. The main types are the Value-Added Tax (VAT), Goods and Services Tax (GST), and sales tax. These taxes are typically added to the cost of goods, services, and transactions to generate revenue. Unlike direct taxes, such as income tax, which are paid directly to the government, indirect taxes are collected throughout the supply chain by being included in the price of goods. Consumption taxes such as VAT and GST are the most common types of indirect taxes, calculated based on a standard percentage determined by the country’s government.

Value-Added Tax (VAT) – expand

VAT is the most widely used tax worldwide. It’s charged at every stage of a product’s journey, from raw materials to the final consumer. At each step, the buyer pays VAT on the goods or services they purchase, but they can usually reclaim the VAT they’ve already paid on earlier transactions. The final consumer ultimately bears the full VAT cost.

For example, a chocolatier buys cocoa beans and sugar, paying VAT on these raw ingredients. When the chocolatier sells a box of chocolates to a customer, they charge VAT on the final price. The customer’s VAT payment reimburses the chocolatier for the VAT they initially paid on the cocoa beans and sugar.

Goods and Services Tax (GST) – expand

In many countries, GST is simply another term for VAT. The method of collection and application is essentially the same.

English and French Approaches to Chocolate Taxation

VAT is not uniformly applied for all chocolates and rates vary between countries. In the UK, biscuits are VAT-free unless covered in chocolate, in which case a 20% VAT rate applies. However, if the chocolate is inside the biscuit (e.g., chocolate chip cookies or filled biscuits), no VAT is charged. Meanwhile, the UK has some interesting case law with Jaffa Cakes and some brownies classified as zero-tax “cakes.”

Application of VAT in the United Kingdom

Chocolate Chip Cookie 0% VAT because the chocolate is incorporated into the cookie dough, not as a separate coating.	Chocolate Covered Wafer 20% VAT because the biscuit is partly or wholly covered in chocolate.

In France, a reduced VAT rate of 5.5% applies to bite-sized pieces of chocolate weighing up to 20 grams. The chocolate must make up at least 25% of the total weight. This includes small chocolate-covered items. However, chocolate bars are taxed differently: dark chocolate bars are subject to the same reduced rate of 5.5%, while milk, white, or filled chocolate bars are taxed at the standard rate of 20%. Such a convoluted system is fitting for the country that started taxing chocolate under Louis XIV, when it first became popular. Today, the financial incentives favor darker or smaller chocolates!

Application of VAT in France

Sales Tax in the United States

In contrast to VAT/GST, the US uses a sales tax system, which is charged only at the point of purchase, not at every stage of production. Sales tax is paid by the consumer to the retailer, who then remits it to the government. Manufacturers or retailers purchasing goods for resale do not pay sales tax on those goods. Moreover, VAT/GST is typically applied to both domestic and international transactions, while sales tax only applies to domestic sales within the US.

The US taxation of chocolate can be surprisingly counterintuitive. Chocolate bars are typically classified as candy and subject to sales tax. While most states partially or fully exempt groceries from sales tax, some also extend these exemptions to candy. Interestingly, if flour is added to chocolate, it may be reclassified as a grocery item, qualifying it for tax exemptions in many states. Sales tax rules vary by state and locality, and retailers are only required to collect sales tax if they have a nexus in the state (a physical or economic presence).

For example, a chocolate shop in Florida sells a box of chocolates to a customer for $30. Since Florida’s sales tax rate is 6%, the customer pays $31.80 in total. The shop collects the $1.80 in sales tax and remits it to the state government. This results from the sales tax being only charged on the final sale to the consumer, not on any earlier transactions in the supply chain.

Chocolate Retail Reality

For the past few years, I have consistently eaten about three full Lindt dark chocolate (85% to 90%) tablets per week, across multiple countries. I have kept a close eye on chocolate supplies and price trends over time.

Looking at the Wayback Machine, I found that on August 9, 2022, the official Lindt website listed the price of a chocolate tablet at $4.29. Fast forward to June 2023, and the price rose to $4.59. By June 2024, it hit $4.89. This represents a 14% increase over two years, which outpaces the Consumer Price Index (CPI) inflation for the same period. Interestingly, when comparing prices across different retailers, it seems that in many US supermarkets, the price is consistently lower. On a recent visit to a local Publix over Christmas, the prices were different yet again and I was surprised by this end of year discounts in the midst of the ongoing ‘cocoa crisis’ which does not affect consumer pricing.

Retail Dark Chocolate

The chocolate industry operates across borders as its own world, benefiting from unique tax and financial incentives at multiple stages of production and global distribution. Regardless of the ongoing cocoa bean supply crisis, the industry has demonstrated impressive resilience, without any noticeable impact on chocolate lovers.

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Cover Image: GIF (Giphy) from Mathilda (1996)

References

1. Food and Agriculture Organization of the United Nations (FAO). (2013). Analysis of Incentives and Disincentives for Cocoa in Ghana (Draft Version). Monitoring African Food and Agricultural Policies (MAFAP) – Strategic Programme for Agriculture and Agribusiness (SPAA). April 2013. Figure 7: Value Chain for cocoa in Ghana, page 19. ↩︎
2. Codex Alimentarius International Food Standards. Standard for Chocolate and Chocolate Products (CXS 87-1981). Adopted in 1981, revised in 2003, amended in 2016 and 2022. ↩︎

Images

3. Cookie Image Source: Galleta con trozos de chocolate (2005). Wikimedia Commons
4. Wafer Image Source: Tunnocks Caramel Wafer Split by Evan-Amos (2011) modified to only show a portion of the wafer. Wikimedia Commons
5. Small Chocolates Image Source: Happy Valentines Day (2005). Wikimedia Commons
6. Dark Chocolate Image Source: Lindt 70 Cocoa Salon Du Chocolat (2013). Jack Oughton
7. Milk Chocolate Image Source: Milka Alpine Milk Chocolate bar 30% cocoa (2021). Wikimedia Commons