An OPEC
for cocoa?
2
B ULK D ISTRIBUTOR
T
he world’s two biggest cocoa producing nations are
seeking to promote sustainability in their respective
industries, as well as ensure higher earnings for farmers, by
agreeing to a new pricing mechanism for the sale of cocoa
beans.
In August, Côte d’Ivoire’s president Alassane Ouattara announced
that his country and Ghana would introduce a US$2,600 per tonne
minimum price on cocoa bean sales, to be implemented on
purchases from the 2020/21 season onwards.
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The initiative, which also raises the guaranteed price for farmers
from CFA750 ($1.28) per kg to CFA1,000 ($1.70) as of October, is
designed to protect the livelihoods of farmers in both countries, and
responds to perceived imbalances between growers’ incomes and
the profits of large commodity traders.
“We arrived at a consensus; everyone agrees that the producers are
not well compensated, and that something must be done to improve
(their) conditions,” Yves Brahima Koné, general manager of Côte
d’Ivoire’s Coffee and Cocoa Council, said in mid-June.
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The plan by Côte d’Ivoire and
Ghana aims to protect growers
from negative fluctuations in the
price of cocoa beans,
The plan aims to protect growers from negative fluctuations in the
price of cocoa beans, as when prices fell 74.5 percent from
December 2015 to December 2017, due to excess supply.
Oxford Business Group says that President Ouattara’s comments
mark a return to earlier proposals aimed at boosting cocoa returns
and represent a change of course from plans negotiated last month.
Côte d’Ivoire and Ghana had initially agreed to implement the flat
$2,600 per tonne minimum price in June, but talks with chocolate
industry representatives in July led officials to replace the proposal
with a $400 a tonne ‘living income differential’ that would be
written into export contracts.
Under this system, buyers would have paid an additional $400 a
tonne on cocoa purchases when market prices dipped below $2,600,
and farmers would receive 70 percent of the overall price.
The plan also stipulated that should market prices exceed $3,000 a
tonne, resources be directed towards a stabilisation fund, which
could later be tapped to bolster farmers’ incomes during times of
low market prices. However, precisely how much would be directed
towards the fund was not clear at the time of writing.
The intervention signals a move by both nations to assert their
influence on global cocoa markets.
Despite producing around 65 percent of the world’s cocoa – 45
percent comes from Côte d’Ivoire and 20 percent from Ghana – the
countries receive only about $6 billion each year from the $100
billion global chocolate industry.
In a nod to efforts by the Organisation of the Petroleum Exporting
Countries (OPEC) to exert pressure over the supply and price of
hydrocarbons, Mahamudu Bawumia, the vice-president of Ghana,
expressed enthusiasm about creating an alliance for cocoa-producing
countries called COPEC.
If successful in stabilising income for farmers, the minimum price
initiative could have widespread effects in both countries given the
industry’s economic significance: cocoa makes up 40 percent of
Ivorian export revenue and supports some two million small scale
farmers, while in Ghana cocoa accounts for around 25 percent of
export revenue.
A more stable market would improve the livelihoods of the millions
who work in the industry. It would also increase farmers’ chances of
gaining access to credit, which in turn could help boost production
and support government efforts to increase local processing.
In order to capture a greater share of cocoa industry revenue, Côte
d’Ivoire aims to process locally as much as half of its cocoa output by
next year, up from 30 percent in mid-2016.
Ghana likewise aims to process half of its yield in the near future,
compared to current levels of around 20 percent.
Despite the projected benefits of the initiative, concerns have been
expressed regarding implementation of the measures.
Although they nominally support increasing farmers’ returns,
representatives from chocolate companies have voiced disquiet about
any attempt to influence market prices, telling international media
that they fear such proposals could place significant risk on
companies should commodity prices fall.
A minimum price could also impact global cocoa markets. Some
commodity analysts have warned that the introduction of the $2,600
floor price, which is around 8 percent above current market prices of
$2,400, or the introduction of the $400 differential could see some
processors turn to other markets for their cocoa supplies in the long
term. This could potentially trigger a surplus of cocoa in West Africa.
Furthermore, while the living income differential appeared to offer
a compromise between public and private players, President
Ouattara’s pledge to revert to the $2,600 minimum rate could see a
colder reception.
To this end, Ivorian and Ghanaian government representatives are
expected to meet with key chocolate industry figures to discuss
technical aspects of the deal.