28th September 2009

Cocoa prices rise, shortfalls predicted

Cocoa prices hit a 24-year high last week, reaching $3,183 per tonne on the New York futures market, now well above the Fairtrade minimum price floor of $1,600 a tonne. Meanwhile the International Cocoa Organisation (ICCO) revised down its forecasted surplus for next year’s harvest from 100,000 tonnes to 25,000-50,000 tonnes.

It seems that demand for cocoa – which took a hit because of the global recession – is picking up again more quickly than expected, even as production is predicted to fall.

In Côte d’Ivoire, which produces 40% of the world’s cocoa, the 2008-09 harvest was afflicted by disease following an overabundance of rain and yields are predicted to be 20% lower than those of the last season. Traders predict that Côte d’Ivoire's falling output will leave a lasting market deficit. The country has an aging stock of cocoa trees, its heavily taxed farmers have little money or incentive to invest in increasing production, and the quality of the cocoa is falling year by year. National management of the industry is in disarray and there is a severe lack of infrastructure or training support for farmers.

Adverse weather conditions caused by the El Niño weather phenomenon are impacting on cocoa yields from Indonesia and Ecuador.

This means there will be a market deficit for the fourth season in a row, with warehouse stocks severely depleted, as illustrated by this graph from the Financial Times.

This is the context for a growing range of fragmented projects and certification initiatives by the multinational chocolate and cocoa companies to combat a long-term decline in global cocoa production.

These include farmer training programmes from the big cocoa processors like Cargill, ADM and Barry Callebaut. Mars is putting $10m into efforts to sequence the cocoa genome, and committing to certifying its cocoa with Rainforest Alliance and Utz Certified, with the aim of making all its cocoa "sustainable" by 2020. Cadbury launched its Cocoa Partnership to invest in cocoa productivity in Ghana, India, Indonesia and the Caribbean, and has converted its flagship Dairy Milk bar to Fairtrade in several countries.

Of course these initiatives are still small fry next to the marketing budgets of big chocolate. The Tropical Commodity Coalition recently reported that the six big chocolate manufacturers (Nestlé, Mars, Cadbury, Ferero, Kraft and Hershey) spent about 20% of their annual budget on marketing expenses in 2008, an impressive total of $8.6bn.

Comments (2)

Tom Allen
13:58, 12th October 2009

Hi Scott, sorry to take so long to get back to you.

There quite a few initiatives out there, ranging from NGOs working with Fairtrade co-operatives, to sustainability projects funded by the big chocolate companies, to broad sector-wide initiatives.

What is striking when you start trying to get your head round them is how fragmented they all are.

The Tropical Commodity Coalition released a report this year surveying the many cocoa and chocolate industry sustainability initiatives in West Africa. They point out that this diverse range of programmes and projects will still only reach fewer than 14% of West African cocoa farmers by 2010.

There is a sector-wide effort called the Roundtable for a Sustainable Cocoa Economy which is trying to pull a lot of these efforts together globally.

Fairtrade itself is a response and a solution to sustainability issues in the cocoa industry. And once co-operatives are in receipt of stable prices and Fairtrade premiums, it becomes possible for farmers to tackle long term sustainability issues in the sector.

In Ghana for example, Kuapa Kokoo is tackling the problem of cocoa farmers clearing virgin rainforest and engaging in un-shaded, intensive cocoa production, which gives initially high yields that then deteriorate rapidly as farms are abandoned.

Kuapa Kokoo is supporting an innovative programme aimed at promoting more traditional, low-external input, shade-grown cocoa systems in Ghana, to improve soil fertility and biodiversity and help support a sustainable cocoa system.

In general Kuapa Kokoo farmers are much better placed than farmers in Cote d'Ivoire to weather sustainability issues in the cocoa industry.

Firstly they are in a Fairtrade co-operative, which means a better and more stable income to help them adapt to challenges. Secondly, they are in Ghana, where the cocoa sector is under partial state control and so there is a framework of support for farmers, including some protection from fluctuations in the market price of cocoa. In Cote d'Ivoire there are Fairtrade co-operatives such as the well known Kavokiva, but they operate in a more difficult environment, with little government support and inadequate infrastructure.

scott (not verified)
23:21, 29th September 2009

Hi Tom,

Thank you for this very informative post.

You raise a number of very interesting challenges that face the global cocoa industry.

There certainly seem to be difficult times ahead for cocoa farmers and their co-operatives.

Are you aware of any particular initiatives by Fairtrade organizations or ATOs who are “in partnership" with these cocoa producers to help them to prepare for and deal with these challenges?

Does Kuapa Kokoo face these same challenges? Will that impact on their Divine brand?

Regards
Scott

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