As global cocoa prices surge and tariffs tighten their grip on imports, The Hershey Company is warning that the cost of its beloved chocolate products may soon rise. The confectionery giant is actively petitioning the U.S. government for a cocoa tariff exemption, citing potential losses of up to $200 million this year if relief isn’t granted. While Hershey has largely been shielded from tariff exposure in the past, the recent cocoa market volatility, driven by supply chain disruptions, speculative trading, and policy shifts, has forced the company to consider price increases and other mitigation strategies to protect its margins.
Why Hershey is pushing for a cocoa tariff exemption
Hershey is urging the federal government to grant a tariff exemption to soften the financial blow from import duties, particularly on cocoa, that could significantly impact its bottom line. The company estimates that these tariffs could cost $20 million in the second quarter alone, with potential losses climbing to $200 million by the end of the year.
“The unmitigated impact could be up to $100 million per quarter for quarter three and quarter four,” said Steven Voskuil, chief financial officer, senior vice president, Hershey. “If you break that down, two-thirds of it are either cocoa or the Canadian retaliatory tariffs. Those are the two areas where we’ve got the most effort focused on influencing government action, using every lever at our disposal to get those tariffs changed, particularly with respect to cocoa.”
Hershey has other imported raw material inputs beyond cocoa. While China is not a major source for the company, it still factors into the overall tariff considerations. The company also imports materials from other countries that are affected by tariffs. Voskuil noted that these inputs are not excluded from potential mitigation efforts, but Hershey is currently prioritizing areas with the most significant financial impact.
Hershey’s president and CEO, Michele Buck, emphasized the unique challenge cocoa tariffs pose, given that cocoa isn’t grown in the U.S. and must be sourced internationally.
“As a largely domestic food producer, we are relatively less exposed to tariffs than other industries. That said, the current US levy on cocoa is an exposure that we must manage on top of the cocoa market’s unprecedented recent price swings,” said Buck. “Cocoa cannot be grown in the United States and thus, we are engaging with the US government to seek an exemption.”
Could Hershey raise chocolate prices if the cocoa tariff exemption fails?
If Hershey fails to secure a tariff exemption on cocoa, the company will likely consider raising the prices of its chocolate products. While no official price hikes have been confirmed, executives have indicated that they are preparing various strategies, including pricing adjustments, to offset the financial impact of tariffs and persistently high cocoa costs. This suggests that price increases could be one of the options on the table to protect profit margins.
“We are encouraged by the recovery in the 2024-25 cocoa crop,” Buck said. “The top three global cocoa markets are tracking to a 20% increase in supply this season. Based on what we know today, we continue to anticipate inflation next year, and robust planning is underway to address persistently high cocoa prices. We are readying options to execute, including pricing, price pack architecture, demand shaping, and sourcing strategies, to mitigate inflation and protect our margins over the long term.”
Cocoa prices reach historic highs
As of late 2024, cocoa prices peaked at over $10,000 per metric ton, a substantial increase from approximately $2,200 in 2022. This dramatic rise is attributed to decreased output in major cocoa-producing countries like Ivory Coast and Ghana, which together account for about 60% of the world’s cocoa supply. Factors such as climate change-induced weather patterns and plant diseases have severely impacted harvests in these regions.
The International Cocoa Organization reported that the 2023/24 cocoa production fell by 13.1% year-over-year, leading to the largest deficit in over 60 years. This shortfall has been exacerbated by issues like cocoa smuggling and illegal mining activities in West Africa, further straining the global supply chain.
While there are projections for a potential surplus in the 2024/25 season, market volatility remains a concern, making price stabilization uncertain.
Source: Food Business News