The coronavirus pandemic has dragged down demand for chocolates. This, in turn, is leading to a slump in cocoa demand as processing of the commodity probably declined in the first quarter.
How Coronavirus is Killing Appetite for Chocolate
Coronavirus cases worldwide are nearing the grim mark of two million and to control the outbreak, with shutting down of businesses being rampant in a bid to maintain social distancing.
Therefore, sweeping travel bans and cancellation of large events as well as shutting down of schools, colleges, universities, restaurants and bars, and shopping malls is being observed globally.
The pandemic is also disrupting global supply chains. In such a scenario, slowdown in global economic growth looks inevitable. In such conditions, demand for luxury items take a hit.
In this regard, Eric Bergman, vice president at JSG Commodities in Norwalk, Connecticut has said “the pandemic is now accelerating the decline in consumption, as disposable income for luxury goods continues to decline”.
It is worth noting here that chocolates see a large part of their demand from tourists and travellers.
With tourism industry badly hit by the pandemic, chocolates sales can be severely impacted.
The job market is also expected to be damaged as Americans are increasingly filing claims for unemployment benefits. The United States has already witnessed 16.8 million applications for jobless benefits in the past three weeks, largely due to the shutdown of non-essential businesses as well as social-distancing measures.
With rising unemployment levels, the spending capacity of consumers will, undoubtedly, be compromised to a great extent. In fact, the latest preliminary report on April’s U.S. consumer sentiment shows that the metric has seen a record decline.
As a result, retail outlets are witnessing waning demand for chocolates in comparison to essential items .
Studying the current scenario, JPMorgan Chase & Co. economists project that the global economy will see lost output of $5.5 trillion or almost 8% of GDP through the end of 2021. Moreover, they believe that the cost to developed economies will be similar to what was borne by them during the 2008-2009 and 1974-1975 recessions. Notably, worldwide cocoa grindings plunged 6.3% during the peak of the Great Recession in 2008-09.
Apart from coronavirus, the world’s top two cocoa producers, Ivory Coast and Ghana had earlier imposed a premium of $400 a metric ton that increased processing cost. Summing up, Eric Bergman, has commented that “chocolate demand will fall as a direct result of rising prices and a sharp contraction in economic growth.”
Analysts are of the opinion that the effects of the slowing global economic growth will be more prominent in the second quarter as no social gatherings, falling retail sales, travel bans, shutdown of duty-free shops in airports and closure of restaurants will hit demand for chocolates.