23rd July 2010

The Return of ‘Choc Finger’

There was lots of excitement in the media over the last week, with cocoa prices briefly hitting a 33-year high after a single buyer cornered the market, purchasing and taking delivery of 240,100 tonnes of cocoa.

That’s £658 million worth of cocoa beans, representing around 7% of the world’s annual production of cocoa, or 15% of current global stocks.

The buyer is a hedge fund called Armajaro Holdings, headed up by multi-millionaire Anthony Ward. The fact that Mr Ward has actually taken delivery of the beans suggests that he is stockpiling them, betting on future cocoa shortages with the hope of selling them on for a whopping profit.

The International Cocoa Organisation (ICCO) says that the purchase will not impact greatly on cocoa processors and chocolate companies, which have already shored up bean stocks for the next four months. However, the global context is that demand for cocoa has outstripped production for four years running, so warehouse stocks are low.

The lurid moniker ‘Choc Finger’ that has been bestowed on Anthony Ward is of course in honour of his Bond villain style plans to control the global cocoa market.

In 2002, he pulled off a similar deal, accumulating 204,000 tonnes of cocoa after two years of poor harvests and political instability in West Africa, before then selling it off and making more than £40 million in two months.

His hedge fund Armajaro is plotting on an even bigger scale, with plans to acquire relatively cheap food production capacity in Africa, effectively betting on the world’s growing population and the expected decline in available farmland and water in years ahead.

The World Development Movement launched a new campaign this week on food commodities, condemning the growing role of hedge funds and investment banks in speculating on food markets and driving volatile price swings. WDM is calling for Britain to follow recent moves in the US to crack down on speculators and curb betting on food prices in financial markets.

What of producers in poor countries?

Commodities grown for export – such as coffee, tea, cocoa and sugar – have risen in price over the last few years, though in real terms they are still lower than in the period between 1961 and 1977. This ought to be of benefit to smallholder farmers, especially Fairtrade farmers, but because the majority of them are net buyers of food, the gains of rising commodity prices have generally been undone by increased food prices.

High world market prices do not always result in high farm gate prices, especially the kind of short term spikes driven by speculators, so much of the profits accrue to other players in the supply chain.

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