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URGENT ACTION NEEDED TO MODERNIZE IVORIAN COCOA SECTOR

URGENT ACTION NEEDED TO MODERNIZE IVORIAN COCOA SECTOR



The World Bank says the Ivorian economy is in good shape but the government there must adapt and make changes in the agricultural sector – particularly cocoa

The Ivorian economy has remained buoyant since the start of the year, posting one of the fastest growth rates in Africa. This rate is projected to reach 7.2 per cent in 2019, compared to 7.4 per cent last year. This was the finding of the ninth economic update for Côte d’Ivoire published by the World Bank.

The bank said this sound performance is due primarily to regained private sector momentum, which had slowed in 2016 and 2017. It said the private sector is once again the main engine of growth in the country but expressed concern about the cocoa sector.

Entitled ‘Au pays du cacao, comment transformer la Côte d’Ivoire’ (‘Cocoaland, How to Transform Côte d’Ivoire’), the report noted that government reforms aimed at improving the business climate encouraged enterprises to step up investments in 2018. The study points out, however, that unlike the 2012-2015 period when the entire private sector expanded,

the current recovery has revolved around the telecommunications, agribusiness, and construction sectors. Furthermore, contributions from the external and public sectors have declined owing to the deterioration in the terms of trade and the fiscal adjustment initiated by the authorities.

Growth coming from private sector, not agriculture

“The outlook remains positive in the short and medium term, with, among other things, inflation that is under control, a government deficit that is expected to fall, and a gradual increase in exports,” explained Jacques Morisset, World Bank Programme Leader for Côte d’Ivoire and lead author of the report. “Several risks could, however, alter these projections, particularly those pertaining to the fragility of the global economic situation and financial markets and to the 2020 presidential elections that could prompt a cautious approach among economic actors and consumers.”

The study calls on the Ivorian Government to focus in particular on managing its accounts because, although the government deficit fell from 4.5 per cent to 4 per cent of GDP between 2017 and 2018, this adjustment essentially involved major budget cuts, including a decline in public investment, rather than higher tax revenue collection.

As the private sector regained its momentum, the agricultural sector slowed significantly, particularly cocoa and cashew production, which serves as a reminder of this sector’s vulnerability to climate shocks and terms of trade. 

Agricultural activity in decline

Overall, agricultural activity is declining in Côte d’Ivoire, even as more than half of its residents continue to depend on it for their livelihoods. The sector has contributed a mere 1.2 percentage points of GDP growth (or 14 per cent) since the country’s improved economic situation starting in 2012. While many factors account for this, they are rooted in the low yield of most cash crops and the failure to diversify and move toward higher value-added  activities. To address this, the government in the country has made the modernization of the agricultural sector a priority in its new national development strategy, in particular the cocoa sector, which is by far the country’s biggest foreign exchange earner. 

The government in Côte d’Ivoire may have recognised the need to revitalise the agricultural sector, but the report – which focuses on the cocoa industry – nonetheless paints a worrying picture. Although harvests have quadrupled since 1960 to over 2 million tonnes in 2018, living conditions of producers have not fundamentally changed. Furthermore, this increased production has had a detrimental impact on Côte d’Ivoire’s natural capital, with the alarming destruction of forests that currently cover roughly 3 million hectares compared to 12 million in 1960. 

Cocoa doesn’t add much to country’s wealth

Côte d’Ivoire supplies 40 per cent of the world’s cocoa but only receives between 5 per cent and 7 per cent of the profit generated by this sector globally. This profit is essentially concentrated in the processing and distribution phases. As a result, although this sector employs close to one million producers and provides income to one-fifth of the Ivorian population, it has not contributed much to the country’s wealth.

It is estimated that 54.9 per cent of Ivorian cocoa producers and their families currently live below the poverty line. Added to this is the fact that in the past two decades, consumers have gained awareness of environmental and social issues and have become more demanding, following numerous investigations that have shed light on the negative role played by cocoa production in terms of deforestation as well as child labour.

Individual producers have not been able to increase their sales because yields have remained constant. In addition, the export price for cocoa has been trending downward since 1960, with an especially sharp fall following the price surge in the mid-1980s. Because of excessive domestic marketing costs and heavy taxation, Ivorian producers receive only 60 per cent of the export price, whereas their counterparts in Cameroon and Nigeria secure more than 80 per cent.

While the current situation for cocoa producers in Côte d’Ivoire is hardly cause for celebration, emerging trends suggest that the future could be bleaker still unless action is taken. On the demand side, new social and environmental concerns among consumers (opposition to child labour and the destruction of forests) will increase costs for producers, who must now certify their cocoa through increasingly sophisticated monitoring mechanisms. Consumer tastes are also shifting toward luxury chocolate, which is not good news for Ivorian producers, whose cocoa beans are generally not of the best quality.■ C&CI

An extract of this article  first appeared in the September’19 issue of C&CI. Click on subscribe now if you wish to read more informative articles in the current and future issues of C&CI.

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