Chocolate Prices Are Rising—But Not as Fast as Cocoa

Cocoa prices have tripled over the past two years, but retail chocolate prices are only up about 10%.

Oct 28, 2024

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If you’re scrambling for last-minute Halloween candy, you may notice chocolate prices have crept up from last year—though maybe not as much as expected. In a year where inflation has pushed the price of everything from eggs to airfare higher, chocolate prices have only risen about 10%. It’s not a small increase, but when you consider that cocoa prices, the main ingredient in chocolate, have shot up 200% to 300% over the past two years, it’s surprising that chocolate bars don’t cost 3 times more than before.

Why the relatively small change then? The explanation lies in the economics of complex supply chains, the market power of a few global chocolate manufacturers, and a strategic shift by companies that has quietly reshaped how—and what—consumers buy when shopping for their Halloween treats.

Why Cocoa Prices Aren’t the Whole Story

Cocoa beans may be chocolate’s most important ingredient, but they account for just a small fraction of a chocolate bar’s final cost by the time it reaches a store’s shelf. The recent surge in cocoa prices—driven by crop shortages and chronic underinvestment—is significant. Yet, raw cocoa represents one of the cheapest pieces in a lengthy supply chain that moves through farmers, wholesalers, processors, manufacturers, and distributors. By the time a bar is ready for retail, most of its cost is tied up in value-added steps like processing, packaging, and marketing, which make up more than half of the price you see at checkout.

To put this in perspective, consider a $1 chocolate bar. Approximately 6.6% of the retail price of a chocolate bar typically goes to farmers, with much of this spent on the cocoa itself. In our $1 bar, that means about 6 cents would initially be spent at the farming stage. Now, imagine that the cost of cocoa triples, and those 6 cents now becomes 18 cents. If the full increase were passed onto the consumers, the bar’s final price would come to about $1.12—a mere 12% increase.

This simplification shows how a dramatic spike in the cost of raw cocoa translates into a relatively small increase in the final prices we see on shelves. Even if companies like Hershey and Mars were to pass on a 30% price increase on to consumers in the coming year, the overall impact still falls far short of the surge in cocoa costs. Keep in mind that the full cost increase isn’t passed on to consumers since each stage in the supply chain would absorb some of the shock. While this may help keep prices manageable for consumers, it also means that cocoa farmers, who often earn less than $1 per day, see little improvement in their earnings.

Monopsony Power Helps Big Brands Keep Prices Stable

But why does each stage of the chocolate supply chain absorb some of the shock of rising cocoa prices? It’s largely because big chocolate companies wield considerable buying power. These giants operate in monopsonistic markets—one with few buyers and many sellers—where they control a significant portion of the demand for cocoa beans and can set terms that ripple down the supply chain. Much like monopoly markets where a single seller has considerable influence on prices for consumers, a monopsony lets these companies exert pressure on suppliers, pushing intermediaries—cocoa processors, traders, and other suppliers—to absorb much of the cost increase before it reaches consumers.

For cocoa producers, this setup brings both stability and limitations. The consistent business from large chocolate brands is valuable, but it leaves producers with little leverage to negotiate higher prices, even when their costs increase, as they have in recent years. Instead, suppliers and processors bear the brunt of rising costs related to crop investments, transportation, and production. Major chocolate companies can also keep their costs stable through long-term contracts and hedging strategies, locking in lower cocoa prices well in advance of recent spikes. This enables large chocolate brands to keep retail prices relatively steady, even as price pressures mount upstream.

Price Sensitivity and a New Halloween Strategy

Chocolate companies are also acutely aware of another market force that helps keep prices in check for consumers: price elasticity of demand. While shoppers may accept a slight increase in price for their favorite treats, a steep price increase could reduce the quantity demanded by a lot—a risk chocolate brands are cautious to avoid. Rather than fully pushing cost increases onto consumers, chocolate manufacturers have taken steps to soften the impact.

For starters, chocolate companies are adjusting how products are packaged instead of simply raising prices. Rather than large, pricier options, you’ll likely find more multipacks, “fun size” assortments, and mixed candy packs in stores. These options provide some flexibility for the most price-sensitive consumers who still want to fill their trick-or-treat bowls. By offering smaller sizes or bundling options, chocolate companies can make sure their products seem affordable.

Additionally, the rise in popularity of gummies, sours, and other non-chocolate candies helps diversify options, and companies are expanding choices to include treats that don’t use chocolate at all. We’ve already seen new varieties of popular candy brands that feature flavors like caramel and cinnamon instead of chocolate. By nudging customers toward smaller formats or alternative candies, companies can reduce their need for large cocoa bean purchases.

Final Thoughts

Looking ahead, we can expect chocolate prices to continue rising gradually. New investments in cocoa farming across West Africa and South America take years to yield results—new trees need at least three to four years to start producing beans. Meanwhile, cocoa farmers are dealing with increasingly unpredictable factors, from climate change to pests like swollen shoot disease. Chocolate companies, for their part, will continue adapting strategies to keep prices stable as long as possible, even as these larger forces reshape the cost of our favorite sweet treat.