First outcomes of the cocoa sector reform in Côte d’Ivoire discussed: Positive on quality but less on processing
18 January 2014
Press reports suggest that the quality of cocoa beans from Côte d’Ivoire has already improved as a result of the cocoa sector reform. The percentage of cocoa beans not meeting the required quality standards has been reduced from 50% in 2011/12 to 19% in 2012/13. This is a result of more stringent standards regarding moisture and humidity and improved confidence in the functioning of the market, encouraging growers to complete the fermentation and drying process before sale.
Reports from the Economist Intelligence Unit suggest that the increase in producer prices has resulted in decreased smuggling of beans to Ghana. However, the price of the mid-crop beans (which are smaller than the main crop) has reportedly been set too high. This has reduced the profitability of processing these beans, and has led buyers and processors to stop buying the smaller mid-crop beans at the set price. The government has subsequently lowered the price of mid-crop beans to help clear the market.
According to the news website Jeune Afrique, producers now receive 60% of the CIF (cost, insurance and freight) export price, compared to less than 50% between 2003 and 2011. However, cocoa traders “feel that the price scale defined by the Cocoa and Coffee Board (CCC) underestimates the transport fees between the field and the factory, which reduces operators’ margins and implies a 4% additional cost for exporters”. This may in part account for why the British trader Armajaro has stopped buying beans from Côte d’Ivoire.
On 2 October 2013, the government Council of Ministers decided to increase the producer price by 3% to FCFA 750. This is well below the price requested by some producer organisations. According to Ecobank, the price increase was necessary to discourage cocoa growers from leaving the sector.
While in the past the government of Côte d’Ivoire sought to encourage increased local processing of cocoa beans, with the aim of increasing local processing from 30 to 50% of the crop, the decision of the CCC to end the long-standing export subsidy first introduced as a temporary measure in 2000 to stimulate investment in domestic processing appears to be having a negative impact on processing activities, “with several processors putting on hold their plans to expand processing capacity”.
Meanwhile, cocoa prices reached a new 2-year high in October as a result of expectations of strong growth in cocoa consumption. This followed ICCO projections of “a cocoa production deficit for five successive seasons”. Cocoa butter prices have reportedly risen “more than 80% year on year”. This is in part linked to a resurgence of growth in demand from the European chocolate industry, with a third-quarter increase in cocoa bean processing in Europe of 4.7%, after renewed growth in the second quarter.
Editorial comment
There is broad agreement that Côte d’Ivoire’s cocoa reforms have – from a farmer’s perspective – been largely successful: quality has improved and producers’ incomes have stabilised.
During the first post-reform full crop year (2012/13), some market players did not participate in the reformed system. This has changed, and increased participation has led to increased competition. There are concerns, however, that the auction system could favour the larger players, such as Cargill and ADM, who have greater financial muscle. In the longer term this could reduce competition. In Ghana, the Cocobod has traditionally operated in a way that ensures that all players remain active.
The reform process has been helped by price trends. While international prices were initially lower, they subsequently increased. However, the question arises: how well will the Ivorian system operate if low prices prevail for several years? Will the stabilisation fund created by the CCC be sufficient to sustain prices and maintain farmers’ interest in growing cocoa? Fortunately, demand growth trends (forecast at 3% per annum up to 2020), if realised, would be likely to reduce the prospect of multiple years of low prices.
If progress in improving quality continues in Côte d’Ivoire, there will be competition with Ghana not only on price, but also on quality. But Côte d’Ivoire’s CCC and Ghana’s Cocobod are increasingly aware of the extent to which they face similar challenges and threats, ranging from climate change, pest and disease control to the effective regulation of the cocoa trade across West Africa, in order to prevent the regulated systems in their countries from being undermined by liberalised systems and associated smuggling in Togo and Guinea. This highlights the scope for increased cooperation.