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OPEC-like collaboration between the world’s largest cocoa producers is unlikely have a significant impact on the industry in the medium term

 Although Côte d’Ivoire and Ghana have a significant influence on global supply and international trade, structural barriers will inhibit their ability to manipulate the cocoa market, analysis by credit and macroeconomic intelligence provider Fitch Solutions suggests.

The West African countries’ ability to influence the market will be limited because they ship cocoa to be processed elsewhere, operate different marketing systems and have limited infrastructure, making coordination difficult, Fitch Solutions believes.

As highlighted previously by C&CI, in a bid to regulate global cocoa production levels and increase returns to local producers, Ghana and Côte d’Ivoire have agreed to harmonise cocoa prices and other marketing and industry activities.

On 1 October 2018, the two cocoa regulatory bodies, Cocobod of Ghana and the Conseil du Cafe-Cacao (CCC) of Cote d’Ivoire, were due to simultaneously set farmgate prices for the upcoming 2018/19 season.

This recent development follows from the price slump of 2016 and 2017 which significantly affected the countries’ economies and drastically reduced farmer incomes. Local producers have become increasingly vulnerable to international price volatility, and the two countries are therefore seeking to protect their domestic cocoa industries.

Structural barriers

Though the countries’ influence on global supply and international trade is substantial, accounting for 63.1 per cent of total supply in 2016/17 and 58.0 per cent of total export value in 2017, various structural barriers will inhibit their ability to manipulate the cocoa market.

Moreover, their share of global production has been steadily decreasing, and Fitch Solutions forecasts that their share of global production to decline to 59.2 per cent by 2022.

“Ghana and Côte d’Ivoire predominantly focus on first stage processing, fermentation and drying, but value is added elsewhere,” said Fitch Solutions. “The majority of value is added by processing cocoa beans into butter, oil, or powder, which in turn is used to make chocolate and other desserts.

“Other cocoa producing regions such as Brazil and Indonesia are actually decreasing their overall cocoa bean output and exporting more cocoa preparations. Ghana and Côte d’Ivoire on the other hand, have increased cocoa bean production while their exports of processed cocoa products have remained stagnant. Africa only gets about 5.0 per cent of the US$100 billion annual chocolate market value, according to the African Development Bank.”

As it also pointed out, the two countries organise their cocoa sectors very differently, which means that attempts to harmonise prices would require that one country change their market structure.

In Côte d’Ivoire, cocoa is sold by farmers to international producers such as Barry Callebaut via state-organised auctions, meaning local farmgate prices are relatively responsive to changes in global prices.■ C&CI

This extract is from an article that first appeared in the November’18 issue of C&CI, click on subscribe now if you wish to read the article in full and other informative articles in the November and future issues of C&CI.

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