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Prospective trends in the future location of global cocoa production

24 July 2014

With the expansion of global cocoa consumption largely driven by market developments in Asia and Latin America, the question has been raised of whether this will see the emergence of patterns of investment that will eventually lead to a decline in the current dominant role of Côte d’Ivoire and Ghana (which account for most of Africa’s 70% of global cocoa production).

Laurent Pipitone, director of the International Cocoa Organization’s (ICCO’s) economic division, acknowledges that there is concern over the fact that just two countries play such a dominant role in supplying cocoa to the global market. The concerns are heightened by developments in both Ghana and Côte d’Ivoire. Press reports in June 2014 highlighted the impact on cocoa production resulting from the sale of illegal mining concessions by impoverished farmers in Ghana. It was estimated that this could be reducing annual production by as much as 100,000 tonnes. This trend, which is undermining government efforts to boost production through fertiliser subsidies, mass spraying of pesticides and bonus payments, is closely linked to the diminishing net returns enjoyed by Ghanaian cocoa farmers.

Representatives of Mars have argued that growing demand in the Asia-Pacific region could see this region emerge as the first major consumption zone with its own domestic cocoa production.

However, while Indonesia is the third largest cocoa producer in the world, annual production in the last 6 years has fallen from 700,000 to 410,000 tonnes as a result of “competition from other crops and pressure from tree diseases”. Cargill and Mars’ attempts to promote cocoa production in Vietnam have met with only limited success, producing a meagre 7,000 tonnes per annum; similar efforts in India have also yielded limited results; and the climate of China is considered unsuitable for cocoa production.

Jean-Marc Anga, Executive Director of ICCO, has argued that there is nonetheless great potential still for cocoa production in Africa. Given the size of its domestic market, Nigeria in particular is seen as having significant potential for expansion.

Reports from the website Agrimoney.com suggest that the imminent deficit in cocoa production (projected at 1 million tonnes by 2020) could stimulate cocoa production across the globe, as investors seek opportunities for estate-based cocoa production to capitalise on evolving market trends. According to the commodity analysis website, “some operators are talking of ‘very high’ operating profit margins… at up to 66% at maturity.” This assumes a cocoa price of US$2,700–2,800 per tonne, a level below the June 2014 spot price of US$3,139/tonne.

Agrimoney.com identifies a range of new estate-based cocoa investment plans, including:

  • investment by Agriterra in a 4,000 ha plantation in Sierra Leone;
  • an expansion of production at ROIG Agro-Cacao’s 3,000 ha plantation in the Dominican Republic;
  • an expansion of Agro-Nica Holdings’ cocoa estate in Nicaragua to 8,000–9,000 ha;
  • plans for 3,000–4,000 ha of combined cocoa and hardwood production at the United Cocoa estate in Peru;
  • a range of unspecified new investments in West Africa, the Philippines and Indonesia.

The move by consumers in developed country markets to chocolate with a higher cocoa content is seen as creating new opportunities for cocoa producers, with countries such as Ecuador in the forefront of efforts to “capitalise on rising demand for premium chocolate”. 

Editorial comment

The emerging situation in the cocoa sector could potentially pose serious policy challenges for ACP governments in West and Central Africa. The current system of smallholder-based production is facing serious challenges, linked to the absence of prices that can provide a sustainable basis for on-farm investment and an inter-generational renewal of the cocoa farming community. Past efforts at cooperative forms of organisation have not always proved successful, yet improving access to planting materials, and attaining economies of scale in harvesting, storage, transportation and marketing would appear essential.

It is against this background that the growing interest in investment in estate-based cocoa production needs to be seen. This could well offer a more effective framework for achieving productivity improvements, reducing logistical costs and meeting evolving demands for sustainability certification of cocoa supply chains.

Hard policy choices would appear to lie ahead for governments in ACP cocoa producing countries, with any moves to estate-based forms of production raising highly sensitive land issues.

It may well be that if West and Central Africa are to retain their current dominant role in cocoa production, then governments will have to reconsider the organisational basis for cocoa production, in order to increasingly focus on sustainable, high-quality cocoa bean production.

Elsewhere in the ACP, more consideration may need to be given to market positioning within an increasingly differentiated and quality-conscious cocoa product market.

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