Association for Free Research and International Cooperation

Cocoa one of the African black gold

Article from AFRIC Editorial
Cocoa is often called the black gold of Africa. Being a typical “colonial” product, it continues to remain for the continent equally - a source of wealth and various troubles. Attempts to regulate the price of cocoa beans were made more than once and as a rule, ended in nothing both due to the specific conditions of production of this product, and due to historically established market organization conditions.

Product specifics

All the major countries of Europe at one time had colonies which were the countries of Africa, Asia and America. Exactly from there, exotic goods were brought such as tea, coffee and spices such as pepper, cardamom, vanilla, cloves, etc. including rice, cotton, paints and, of course, cocoa. Since then, the market structure has not changed. The high demand for cocoa beans for the production of chocolate, as well as for use in the cosmetic, pharmaceutical and other industries, made this product a full-fledged commodity. It is difficult to imagine the confectionery industry without cocoa products. Despite all the shocks in the world, the demand for chocolate remains stable. The specifics of growing cocoa beans is such that only a limited number of countries are suitable for production scale in terms of their climatic characteristics.

Cocoa trees grow in the equatorial zone, between 10 degrees north and 10 degrees south latitude, where the air temperature does not drop below plus 18 degrees. Cocoa is not easy to grow. In addition to heat, plentiful watering and high humidity in the first years of life, trees need shading, because in natural conditions cocoa grew in the shade of tropical rain forests. That is why the sprouts are covered with polyethylene until the seedlings form a strong root system. From planting a seedling to receiving the first fruits, two to five years pass. When the tree begins to bear fruit in full force, the crop can be harvested twice a year, as is done on most plantations in Côte d’Ivoire, where the main cocoa season begins with the rainy season and falls on October – March, and the second crop is received in May – August . Pickers regularly go around plantations throughout the season: even on one tree the fruits ripen at different times, and the more often workers check the condition of the pods, the higher the yield.

This makes the market and pricing dependent on crop volumes and product import opportunities. In particular, on the African continent, there is still smuggling of cocoa beans to neighboring countries for the purpose of selling, and the possibility of exporting goods at any time may be impaired due to political differences. Nevertheless, market participants, including countries involved in the procurement and processing of raw cocoa, are looking for ways to stabilize the market and make it as predictable as possible.

Market Regulation Factors

Today, the cocoa-bean price control policy makes the market more predictable, however, it is noted that with a significant decrease in cost, farmers refuse to grow crops in favor of others for example, cashew nuts. Firstly, there are many factors that are difficult to predict, for example, the percentage of pollination of flowers,

Secondly, in many areas of West Africa there are no statistical services that allow you to take into account the changes in the territories designated for cultivation of cocoa beans, as well as track annual fluctuations in the crop in order to relate them to weather conditions.

Thirdly, the aging of plantations is affected by production volumes; a decline in productivity in 2017-2018 was recorded in Ghana. Lack of control over updating the resource base causes the producer no less harm than drought or insect pests. A cocoa tree becomes capable of fruiting no earlier than it reaches the age of 3 years and its productivity will reach a peak for several more years. And perhaps the most important is the political factor. In particular, the political instability in Côte d’Ivoire, the main producer of cocoa beans, has been fluctuating prices on the world market for several years due to the lack of guarantees for supplies.

Political instability

Military clashes, popular uprisings and provocations by opposition groups in Côte d’Ivoire raise the cost of raw materials by 10-15%. The maximum was recorded at 20%. The shorter the time conflict, the less pronounced are the effects on product price fluctuations. Often in business publications, you can see the following article headings: “Cocoa Beans Are Rising in Price.” And the following content: “World prices for cocoa beans are rising at the fastest pace in five years amid the collapse of negotiations between the command of the Côte d’Ivoire army and the rebel soldiers.”

Leading Cocoa Bean Countries

Côte d’Ivoire and Ghana are the main producers of cocoa beans, they account for 63% of world production. Cameroon and Nigeria are the third and fourth largest cocoa producers on the continent, according to estimates by the International Cocoa Organization (ICCO), respectively, 270,000 and 250,000 tons were produced in the 2018-2019 season. They account for about 10% of world production. According to estimates by the International Cocoa Association (ICCO), 90% of the raw materials grow on small family plantations that are inherited. Farms with chocolate trees are located in areas far from civilization, and the majority of owners and workers on plantations have never tasted chocolate.

As a rule, owners of cocoa farms are not familiar with the dynamics of prices and therefore often sell their crops half as much as the average exchange price. According to the Fairtrade Foundation, in the mid-80s, farmers received 16% of the income from the sale of their products. But by zero years, the situation has changed for the worse: farmers were left with an average of 3.5–6.4%, while manufacturers and retailers shared most of their income. Some Ghanaian farmers export their raw materials to neighboring Côte d’Ivoire, where cocoa beans can be sold a little more profitably. This is hitting the unstable economy of Ghana, whose authorities cannot establish the infrastructure for the quick and timely delivery of cocoa to global chocolate producers.

 Attempts to reform the industry

The authorities of Côte d’Ivoire are trying to support the industry with reforms. Since 2016, the government has set a fixed price for raw materials typically between 750-850 African francs per kilogram of cocoa beans, which has helped households increase their income by 30%. However, farmers are still unhappy, because work on plantations is associated with high risks of injury or illness. According to human rights activists, child labor is illegally used on plantations: UNESCO estimates that 40%, or about 2.2 million children of Côte d’Ivoire, aged 5 to 14, annually participate in the harvest of cocoa beans. Together, African countries have 73% or more of world production. Enough to be able to regulate world prices for cocoa beans. However, this does not happen, due to contradictions between African producing countries.

For the second year in a row, Côte d’Ivoire and Ghana have been trying to implement a cartel agreement, the essence of which is to regulate production volumes and purchase prices for cocoa beans. On June 12, 2019, a “historic” decision was made when both countries, trying to raise the remuneration of farmers, suspended the sale of their crops, shocking the markets.

We are not going to sell crops in 2020–2021 for less than $ 2,600 per ton. And we will have a margin of $ 400 so that we provide manufacturers with a minimum amount, the manufacturers demanded. However, world producers had sufficient supplies of raw materials, and a month later the measure to suspend sales was canceled. One way or another, but the ability of African countries to implement mutual agreements is the only way to increase wealth in open competition with Western companies.

Article from AFRIC Editorial

Photo Credit : google images/illustration

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