Eye on Africa: Cocoa market

Posted in Africa | 08-Feb-05 | Author: Mvemba Dizolele

Cocoa buyer examines beans to evaluate their quality as they are shoveled into sacks ready to be exported, in western Ivory Coast.

Washington, DC, Feb. 7 (UPI) -- The Mayans called it the food of the gods. In Africa, cocoa is the primary source of income for thousands of small farmers. Governments depend on it for foreign currency.

West Africa produces 70 percent of the world's cocoa, with Côte d'Ivoire and Ghana supplying 40 and 25 percent of global consumption respectively. Cameroon and Nigeria make up the difference.

With an annual production of 3 million tons, the current cocoa global market is valued at $4 billion. But cocoa production can be fickle and constant price fluctuations affect revenue. According to the World Cocoa Foundation, diseases and pests destroy 30 to 35 percent of the world's cocoa crop each year.

"We are concerned about sustainable cocoa production," says Bill Guyton, president of the World Cocoa Foundation. "We take an integrated approach to address the economic, environmental and social components that affect production."

Low prices give farmers little incentive to meet market demands. The low profit margin drives many of them out of cocoa business into other crops.

"The manufacturers would like for them to continue farming cocoa," says Guyton. "We provide tree crops programs and other related support to help improve production and marketing efficiencies so that the farmers could increase their income and receive a greater percentage of the world market price."

Lending logistical support to farmers can be daunting. Côte d'Ivoire alone has about 700,000 cocoa farmers, the majority of which are small family farms located in very remote areas. Most of them are not organized in farmers' groups. Only 20 percent belong to farmers' organizations or cooperatives. Under these constraints, it is hard to provide an information network for farmers.

"Since independence, Côte d'Ivoire has invested heavily into agriculture, particularly cocoa and coffee," says Daouda Diabaté, Côte d'Ivoire's ambassador to the United States. "We are concerned with both quality and quantity. This investment is paying off."

In 1999, the country privatized la Caisse de Stabilisation, the government body that regulated and set the terms of cocoa and coffee trade, and renamed it Nouvelle Caistab.

In 2000, Côte d'Ivoire further restructured its marketing system and closed the Nouvelle Caistab, replacing it with several structures, including the Bourse du Café et Cacao and the Autorité de Régulation du Café et du Cacao.

"With privatization, the farmers control and manage all the trading institutions," says Diabaté. "The state has only an overseeing role on the board. We are pleased with this development."

A rebellion has split the country in two since September 2002, with dissident forces controlling the north. However, the war has had very little effect on cocoa production because the cocoa-growing region is under government control.

"Uncertainty is a big concern for some farmers," says Diabaté. "This has lead to some cross-border smuggling into Ghana."

Last year, Côte d'Ivoire produced 1.3 million tons of cocoa, registering a low 50,000 tons in annual increment.

Ghana, the world's second largest cocoa producer, had a successful year. It produced a record 700,000 tons, with a high 150,000 tons in annual increment.

"Smuggling has no effect on our production. We simply produce top quality cocoa," says Fritz Poku, Ghana's ambassador in Washington. "Our cocoa sells at a premium because of top quality."

After its independence, Ghana was the world's largest cocoa producer, but years of mismanagement under various dictatorships undermined its position in the market. Côte d'Ivoire, on the other hand, enjoyed 33 years of stability under the late President Felix Houphouët-Boigny, allowing it to build a stronger agricultural base.

Nevertheless, Ghana has made substantial strides under a recent democratic regime. The elected leaders are determined to revitalize and modernize agriculture.

"The government has put in place a system that reviews the price we pay to our farmers," says Poku. "Since 2000, we have increased the price threefold. We also have a bonus structure to reward farmers for their extra efforts."

The government has taken initiatives to assure cocoa farmers their business can be very remunerative.

"The farmer gets 70 percent of the world market price. A good chunk of what we derive from cocoa goes back to the farmer," Poku explains. "This underscores the importance the leaders attach to the farmer's livelihood."

Ghana has resorted to loan syndication to guarantee farmers a ready market. "As of the last crop season, we were able to syndicate a $850 million loan offshore, which was oversubscribed," says Poku.

In an effort to fight capsids and cocoa pod diseases, the government has also invested in a pest and disease control program, which has covered 1.7 million hectares.

Still, Côte d'Ivoire and Ghana wield little power in price negotiation. A limited number of powerful international companies dominate the cocoa business. Côte d'Ivoire and Ghana process 50 and 25 percent of their cocoa respectively. The remainder is processed overseas, shifting price negotiation power.

"We need to modernize the cocoa industry quickly in order to add more value to our production," says Poku.

Ghana and Côte d'Ivoire, and the other cocoa-producing countries, would also benefit from greater storage capacity. A network of high-tech silos would allow them to control production and increase their bargaining power.

The great demand for cocoa allows for a cartel. Whether cocoa producers could muster the political will for such an undertaking remains to be seen.

Comments may be sent to mvemba@worldsecuritynetwork.com