Sale of cocoa suspended by Côte d’Ivoire and Ghana: A Step in the right direction?
Ghana (Gh) and Côte d’Ivoire (CI) have announced that they will suspend all sale of the 2020-21 cocoa crop if buyers fail to pay at least $ 2,600 for it. According to RFI, this move from the two largest producing countries in the world (roughly 65% of global production) is a spectacular first, but it involves some risks.
This alliance between Ghana and Ivory Coast is historic. Thus far, they have openly competed on the cocoa market. But in 2015-2016, they started exploring pooling the basket in order to increase their collective bargaining power. That is one of the reasons, the other is to prevent some of the shenanigans that result from incoherent boarder lines: farmers crossing the borders in order to flog their cocoa in CI or Gh depending on which country is offering a better price that season.
The other “alleged” motivation is to ensure that the farmers of bank a bigger slice of the 100 billion dollar cocoa pie where currently only a reported 6 billion ends up back in their pockets. I say “alleged”, because of my healthy skepticism that this will translate in any significant repatriation of funds back to the farmers. Having spent a little time in the growing zones in CI, it is quite apparent the further you get out of Abidjan and Yamoussoukro (the financial and political capitals respectively) the worse the standard of living, infrastructure, the state of basic services (electricity and water). Ministers don’t even visit some of these areas unless there are going for a family event. And the roads, let’s not even talk about the roads!
It seems to me that a lot of this is rhetoric (at least in CI): The government enjoys the haul from selling the product (much of the 2,000,000 tonnes produced there is sold ahead of the actual harvest), but don’t enjoy spending on the infrastructure that supports the industry.
So is the strong-arm tactic likely to succeed? In the short term, maybe. The market is favourable, it has also reacted as anticipated: prices have climbed since the announcement – they are at their highest level for almost a year. Add to that the fact that Ghana is still battling the resurgence of “swollen shoot”. In Côte d’Ivoire, the next production could also fall due to a shortage of rain. So perhaps the market is reacting to that as well.
Risks
If Ghana and Ivory Coast close the shop for an extended period, it’s risky. For the moment, big players like Cargill or Cemoi have grinding capacity in Ivory Coast. They have invested and have no interest in abandoning Ivorian and Ghanaian cocoa. But to be able to influence the price positively, the economic basic principles of demand and supply dictate that you must be able to withhold the product for a certain period of time. However, cocoa is a fragile product and very hydroscopic, so storage for protracted period of time (especially in the humid climates in question) becomes a(n) (expensive) problem. And as mentioned earlier, at least in CI, “reinvestment” into the industry has been an afterthought.
The other risk is that buyers of beans, are gradually turning to other less demanding countries (CI’s cocoa market, for example, is over-regulated and extremely obfuscated to ensure that the industry is remains complex). Other geographies such as Cameroon, Nigeria, the US and Ecuador are beginning to attract more and more buyers. Even Malaysia in entering the fray! But as depicted below all the other cocoa producing countries would be unable to offset the lacuna that would be caused by CI and Gh not opening their doors
Elections are coming!
The biggest reason why it’s unlikely that CI and Gh will be able to hold out too long, is that they are both in their pre-election periods. Simply put, they will need cocoa income. Regulatory bodies in these two countries have no reserves, because of the fall in prices in 2016, but also major management issues. The cynic will further argue that this whole “exercise” was simply to SHOW the common man/farmer how much the government “cares”… In Côte d’Ivoire, farmers receive only FCFA 750 per kilogram (approx $1.28), 40% less than before the fall in prices in 2016. And, on top of that, due to various factors (too complicated to get into here), producers often don’t even get the legislated price.
In conclusion, YES, this move is a great initiative by Ghana and Côte d’Ivoire: the potential benefits seem to outweigh the risk. HOWEVER, only time will tell whether it translates into anything concrete or if it even lasts long enough to begin with.
