Chocolate war leaves top cocoa producer stuck with beans

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NOBODY is suffering more from a global chocolate standoff than the Cote d’Ivoire cocoa farmer.

Less than two years after the top cocoa producer teamed up with neighbouring Ghana to force companies from Hershey Co. to Nestle SA to pay more for their beans, the attempt to exert control over prices is backfiring. Buyers are refusing to pay up, beans are piling in warehouses upcountry and farmers are so desperate that some even slept outside the offices of Cote d’Ivoire’s cocoa regulator demanding action.

‘We have suffered with our cocoa piling up,’ said Baba Kampe, a 45-year-old farmer with 8 hectares (20 acres) in Daloa who was among those sleeping outside the regulator’s offices Monday. ‘It has been difficult to feed our children,’ he told Bloomberg.

The co-operation to charge the $100bn chocolate industry a premium of $400 per metric ton was intended to boost income for some of the world’s poorest growers, the West African nations said. But for many cocoa traders, processors and chocolate makers, it was an OPEC-style attempt to boost prices that lacked the supply-and-demand economics key to that cartel’s success.

Farmers now are paying the price. Cote d’Ivoire and Ghana, which account for almost 70 percent of world supplies, expanded output just as the pandemic locked down cities from Paris to Los Angeles, hurting demand. Growers can’t sell their crop and don’t have a way to store it. Middlemen are paying less than the government’s minimum price, and Cote d’Ivoire had to offer deep discounts to offload this season’s crop.

‘The farmers are very fed up with the whole thing because they were promised this Utopian existence that wasn’t based on sound economics,’ said Jonathan Parkman, deputy head of agriculture at Marex Spectron Group Limited, who has followed cocoa for 30 years. ‘That doesn’t help farmers, it hinders them.’

No buyers

The average West African grower farms no more than 3.5 hectares and supports six to eight family members, according to the World Cocoa Foundation industry group. More than half of Cote d’Ivoire’s growers live below the poverty line. With no access to irrigation or modern farming techniques, they rely on the weather. But not even that matters anymore.

‘What good is it to follow the weather closely and have a good harvest when there are no buyers,’ said Kouadio Moussa, a 45-year-old farmer of 3.5 hectares in Anoumaba.

Chocolate is a luxury product that benefits from gifting and impulse buying. With many shopping online during the pandemic, consumers aren’t picking up that last-minute bar before reaching the cashier. Nor are they buying the assorted boxes typically given at Christmas and Valentine’s Day.

That created a global surplus and left Cote d’Ivoire struggling to sell what’s now the world’s most expensive cocoa. Ghana is in a better position since many European chocolatiers need its high-quality beans for their premium bars. Still, European processing dropped to a four-year low in the fourth quarter.

Cocoa is the third-highest export earner for Ghana and accounts for 8 percent of Cote d’Ivoire’s economy. The situation is so dire that Ivorian regulator Le Conseil du Cafe Cacao (CCC) is mulling such drastic steps as purchasing 50,000 tons and delaying the commercialisation of two-thirds of the unsold beans –- or about 200,000 tons — to the smaller of two annual harvests that starts in April.

Back to 1987

That’s bringing back memories of 1987, when Ivorian President Felix Houphouet-Boigny, faced with a bumper crop, imposed a sales embargo and struck deals with traders to store at least a quarter of the country’s output with the sole objective of pushing up prices. The strategy, recounted in the book La Guerre du Cacao, or The Cocoa War, backfired, and prices more than halved during the more than two-year ban.

‘Nobody in this world can guarantee a higher price for more cocoa, especially when demand is falling,’ said Derek Chambers, a retired cocoa trader and protagonist in those events. ‘There is brave talk of putting cocoa in store, which history tells us is a destruction of value. It has been tried before, and the CCC could do worse than re-read La Guerre du Cacao to see how it ends.’

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