The response to plans from the world’s largest cocoa producing nations – Côte d’Ivoire and Ghana – for the creation of buffer stocks in an attempt to boost cocoa prices has met with a mixed response.
Côte d’Ivoire and Ghana want to see the International Cocoa Agreement (ICA) modified to include the use, when necessary, of buffer stocks, a concept that hasn’t been part of the ICA since the 1970s.
Together, they have applied to the African Development Bank (AfDB) for help to support producers, not least by providing funds to build warehouses on the continent where cocoa could be stored. The AfDB has agreed to help with the establishment of a Cocoa Market Stabilization Fund and a Cocoa Exchange Commission to manage production. It has also agreed to work with them to establish a Cocoa Industrialization Fund to help develop the cocoa industry in the region.
US$1.2 billion is being sought from the AfDB for projects to tackle cocoa swollen shoot virus disease; build the warehouses; promote processing and consumption; establish an African cocoa exchange; and to establish the stabilization fund.
“I don’t think the plan is realistic,” one well-known analyst told C&CI. “If they could work together and hold 200,000-500,000 tonnes off the market it would make a material difference, but they are talking about the 2018/19 season as a starting point and I can’t imagine anybody actually taking it too seriously unless it was actually happening.
“Unless cocoa were to be destroyed I think history tells us that buffer stock/production quotas don’t work. There will probably be cheating. If the stock is made available at a certain price, that price becomes a ceiling, and if that price is set at an unrealistically high level it will only encourage production, in which case they will end up buying stocks on an annual basis until the money runs out. The best cure for low prices is low prices, and we are certainly seeing the sort of grind response which might mean there won’t be much need to build stockpiles once 2018/19 rolls around.”
Other analysts suggest that something needs to change. They highlight the fact that even when prices are high, much higher, cocoa farmers live at or below the poverty line. Organizations such as Voice Network have been calling for something like the African plan for a long time. It argues that some form of supply management is necessary. It sees the joint plan as part of a potential solution to a long-term issue.
For more information see the forthcoming November 2017 issue of Coffee & Cocoa International.