The Easter Bunny may put a bounce in chocolate sales, but the industry is under threat from changing consumption patterns and difficulties with cocoa farming.
More than 3 million tons of cocoa beans are consumed worldwide annually, according to the World Cocoa Foundation. Global demand continues to rise, in part due to increasing demand from emerging markets for confectionery. The overall chocolate market rose 13 percent between 2010 and 2015 to hit $101 billion, according to Euromonitor, a market research firm.
However, the market has stagnated in Western Europe, in part due to increasing health concerns about sugar — which is present in high volumes in most chocolate confectionery. The average person in Europe and the U.S. consumes around 5.2 kilograms (11.5 pounds) of chocolate each year, according to Erste Asset Management. Euromonitor says the U.K. market for chocolate shrunk by $2 million between 2013 and 2015.
Source: Erste Asset Management
Cocoa futures have risen fairly steadily since 2013, apart from a brief slump earlier this year.
However, BMI Research forecasts prices will start to trend lower until 2019, as supply grows faster than demand. That's due to a rebound in production in West Africa, especially in Ghana, the second-biggest producer of cocoa beans after Ivory Coast, the research firm said in a report in February.
Hamish Smith, commodities economist at Capital Economics, also expects prices to fall.
"After the recent surges in the prices of cocoa and sugar, we think that prices are likely to fall back a little from currently high levels," he told CNBC via email.
This might seem like a boon for producers, but Smith added that the benefits of falling cocoa prices may be limited.
"While lower prices can be expected to benefit producers in terms of cheaper production costs, raw commodity costs tend to be a relatively small share of overall costs of goods such as chocolate (other costs include labor, transport, packaging and marketing)."
Longer-term, the supply-demand balance could shift, with cocoa production potentially challenged by climate change.
Cocoa is a delicate crop and trees are susceptible to changing weather patterns, as well as diseases and insects. The International Center for Tropical Agriculture has warned that an expected annual temperature rise of more than 2 degrees Celsius by 2050 will leave many of West Africa's cocoa-producing areas too hot to grow the crop. Trees are seen struggling to obtain enough water during the growing season.
Some farmers in Ghana and Ivory Coast are already switching to more lucrative crops like palm oil or rubber. The Earth Security Group, a sustainability consulting firm, says that if farmers continue to switch out of the crop at the same rate, the world could face a 1 million ton cocoa shortage by 2020 — confounding forecasts of excess supply.
Meanwhile, campaigners continue to raise concerns about impoverishment and the use of child labor on cocoa farms. Around 2 million children work on cocoa plantations in Ivory Coast and Ghana, 500,000 of them in "exploitative conditions," according to the European Campaign for Fair Chocolate.
In January, Nestle lost its bid to throw out a court case that accused it of using child slaves in Ivory Coast.
"No company sourcing cocoa from (Ivory Coast) can guarantee they have completely removed the risk of children working on small farms in their supply chain. Nestle is no different, but we are determined to tackle the problem," the Swiss food and beverage giant said on its website.