Higher prices for Ivorian cocoa producers set to encourage production
04 January 2013
On 3 October 2012, the producer price for cocoa in Côte d’Ivoire for the 2012/13 season was set at FCFA725,000/tonne (US$1,410/t). According to press reports, this is ‘equivalent to 60 percent of the international price at which cocoa is exported’. In the 2011/12 season, farmers earned about CFA 667,000/t ($1,290/t), a price based on an indicative farm-gate price. ‘Producers have widely welcomed the price announcement,’ according to reports carried on the IRIN news service. It is expected that the price announcement will lead to an increase in the area under cocoa, as well as to improved fertiliser and insecticide application and improvements in cocoa bean quality.
However, ‘poor roads and pervasive racketeering’ are reportedly reducing farmers’ marketing options, as buyers can no longer pass on these costs to producers. The Conseil du Café-Cacao (CCC), established in January 2012, estimates that illegal road blocks cost the cocoa sector ‘as much as $19.5 million per year’. The CCC, however, claims that it will have ‘renovated 3,000km of roads by December 2012 in main cocoa-growing areas’.
The ongoing process of reform of the Ivorian cocoa sector aims to reduce ‘the number of intermediaries involved in the buying process’, with the objective of improving the efficiency of the supply chain. Forward purchasing of cocoa by the government from farmers should also improve cash flow in the sector.
To date, heavy penalties – Including removal of licences to operate – have been imposed on traders that do not respect government pricing instructions. The number of inspectors deployed to enforce government pricing policy has also been increased.
Reformed marketing arrangements in Côte d’Ivoire appear to be settling down, after early warnings on the website Agrimoney.com that government efforts to guarantee producers a specific price for their cocoa by forward selling could fall foul of higher than expected spot market prices. It was argued that with rising spot prices, ‘prevailing market prices could be significantly higher than what the Ivory Coast will end up paying farmers’. It was maintained that this could then lead to ‘potential defaults on agreed sales, selling spot at market prices or even smuggling across the border to Ghana’. There were also concerns in September 2012 that disputes with merchants over transportation costs could lead to a traders’ boycott and increase levels of smuggling of cocoa to Ghana.
In addition, there remain concerns about the quality of Ivorian cocoa, since new government rules prevent buyers from offering lower prices for poorer quality beans.
Editorial comment
The past year has seen tough negotiation between all cocoa stakeholders in Côte d’Ivoire, with concerns being expressed at the potential for disruption across the sector. This has provided considerable scope for speculation on cocoa markets. However, with World Bank and IMF endorsement dependent on successful reform (with over US$10 billion in multilateral and bilateral debt relief at stake), the Ivorian government has proved successful in guiding through the reforms.
While many Ivorian cocoa farmers had expected the new price to be higher – Ghana established its fixed farm-gate price at 3,392 cedis/t, equivalent to US$1,800, for the 2012/13 season – the eventual price set proved acceptable. While it was speculated that the lower Ivorian price would potentially encourage cocoa smuggling to Ghana, by November the opposite was proving to be the case, as Ivorian farmers and exporters reported that traditional smuggling routes were operating in reverse (from Ghana to Côte d’Ivoire) in the face of a depreciation of the cedi (–20% in the first half of 2012) and payment delays by Ghana’s Cocobod.
The consensus eventually reached was greatly aided by the negotiation by the CCC (which consists of representatives of all stakeholders involved in the cocoa sector and is charged with the management, regulation, development and price stabilisation of cocoa) of an increase in the transport reimbursement allowance. Exporters and middlemen should now receive 22% of the CIF (cost, insurance, freight) price for the 2012/13 season, up from 18% last year, an increase that fell within the exporters’ anticipated range.
Overall, it now appears that the reforms introduced in Côte d’Ivoire are settling in (for more details see Agritrade special report ‘Côte d’Ivoire’s cocoa sector reforms’, TBC), although the whole system remains vulnerable to the volatility of international cocoa prices. Between July 2010 and December 2011, prices halved before rebounding to a 10-month high in September 2012, regaining virtually all of the lost value.
