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Short-term global cocoa market trends and emerging policy responses

30 January 2012

At the beginning of 2012, website Agrimoney.com reviewed various projections for the short-term future of global cocoa markets. It noted that in 2011 ‘cocoa prices ended …more than 30% lower than they started the year’, with this marking ‘the second successive year of decline’.

Commerzbank highlighted how earlier concerns over supplies linked to the political crisis in Côte d’Ivoire proved to be ‘unfounded’, with record harvests in both Côte d’Ivoire (1.5 million tonnes and Ghana (over 1 million tonnes). A further good production season is expected in 2012 as the bank forecasts: ‘after the large supply surplus in 2010-11, at least a modest oversupply could be reported again’. As a consequence, according to Commerzbank, ‘despite growing demand, the cocoa price is likely to have only limited upward scope given the large supply volumes.’

Goldman Sachs for its part has concerns about future production in Côte d’Ivoire in view of the sector’s investment needs, although it is considered that ‘the introduction of a guaranteed minimum price for farmers …equal to as much as 60% of international prices, could support investment in the sector.’

Rabobank agrees that lower cocoa prices are likely in 2012, with the economic downturn leading to ‘demand destruction’ in the chocolate confectionery sector. However, increasing use of cocoa powder in a variety of other products is likely to boost overall demand. Rabobank maintains that prices could be impacted by policy changes related to pricing and marketing introduced by the new government in Côte d’Ivoire.

The projections of Standard Chartered lie between Commerzbank and Rabobank’s estimates.

Forecasts of the New York cocoa price for 2012 (US$/tonne)

  2012 Q1 2012 Q2 2012 Q3 2012 Q4
Commerzbank 2,300 2,400 2,500 2,500
Rabobank 2,350 2,450 2,350 2,300
Standard Chartered 2,350 2,500 2,450 2,400
Goldman Sachs 2,700 2,700 - 2,700

In the Caribbean, Jamaican government officials claim that ‘the cocoa sector is seen as poised for growth’ based on ‘government support and interest from overseas processors’. The government has ‘increased the farm gate price of cocoa by 23 per cent and is looking at promoting small-scale, high-end production of the crop’. In addition, the Jamaican Cocoa Industry Board (sole marketing agent for Jamaican cocoa) and the Scientific Research Council are looking to ‘develop and market high-end value-added products of cocoa’. This is in part supported by ‘a J$63-million grant from the European Union to help 650 farmers boost production for export’. This programme aims to resuscitate some 1,500 acres of cocoa fields’, increasing yields by 50%.

This strategy would be consistent with the growing processor interest in Jamaica’s ‘fine flavour’ cocoa. The former agriculture minister, Robert Montague, described overseas demand as signalling ‘a glorious and bright day for cocoa’. 

Editorial comment

While smaller producers such as those in the Caribbean are placing considerable emphasis on producing ‘fine flavour’ cocoas and strengthening the marketing of these speciality cocoas, this option is not open to the bulk producers of West Africa. Given the longer-term trend towards expanding demand (see Agritrade article ‘ Expanded cocoa production required to meet growing demand’, 27 December 2011), if short-term price prospects are not to undermine farmer confidence, close attention will need to be paid to strengthening the functioning of the cocoa supply chain to the benefit of primary producers.

The current reforms in Côte d’Ivoire, which involve rolling back a decade of liberalisation and moves towards greater regulation of the cocoa sector, are of particular interest. The aim is to guarantee local farmers at least 60% of the export price of the bean. Daily auctions are due to be organised soon to sell roughly 70 to 80% of next season’s crop. While this was initially scheduled for October 2011, further industry consultations were required. There are however concerns that the standardisation of transportation fees to coastal ports (FCFA 15/kg – i.e. €0.023/kg) underestimate real costs, and potentially disrupt inland transportation arrangements.

The system of tax rebates for local grinders (Cargill, ADM, Barry Callebaut and Cemoi) which has turned Côte d’Ivoire into the world’s top cocoa grinder since 2010 (with a total capacity of 532,000 tonnes) is also being questioned. While this has encouraged and continues to encourage investment locally (both Barry Callebaut and Cemoi plan further grinding expansion in 2012), major buyers claim that they simply cannot match farm-gate prices paid by these locally based grinders. The current system is being analysed to see it if needs to be revised, particularly given the estimated FCFA 34 billion cost (some €52 million).

Issues linked to the reform process will potentially have an impact on the development of the cocoa sector, including via possible supply disruptions (via strikes and protests) and could complicate the securing of IMF debt rescheduling and loans, part of which will provide financial resources for input supply programmes and other required investments in the cocoa sector. 

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