Weak global cocoa prices have caused much grief to African producers. Global cocoa futures were down 40% in late April from August 2016, when the decline started.

Côte d’Ivoire, the world’s largest producer of the commodity, has cut its 2017 budget by 10% consequently. Neighbouring Ghana, and second largest cocoa producer, also missed out on about $1 billion in cocoa export earnings due to the bearish market, according to Joseph Boahen Aidoo, Chief Executive of the Ghana Cocoa Board (Cocobod), on the sidelines of the emergency International Cocoa Organization (ICCO) meeting held in Abidjan in late April.

The $1.8-billion loan the Cocobod took for the 2016-17 season was spent carelessly or misappropriated to road contracts by Ghana’s erstwhile John Dramani Mahama administration ahead of elections in December 2016, causing it to run out in March. The Cocobod had to seek $400 million in bridge financing via cocoa bills from the Bank of Ghana, the country’s central bank.

Rapid Railway Yet Slow Ports

In light of the debilitating effects their cocoa troubles are having on their finances, Côte d’Ivoire and Ghana have been forced to collaborate more. Unfortunately, the countries, which together account for about 60% of global cocoa supply, have different pricing systems.

“We are trying to harmonize how we do our systems for trading so we can use that to monitor the market and coordinate the sale of cocoa,” said Aidoo in April.

To reduce price volatility, cocoa producers resolved at the ICCO meeting to better manage supply.

Poor bean quality, especially high acidity, is a downer as well. Farmers also worry about above normal humidity levels. In mid-March, Ivorian cocoa grinders were rejecting as much as half of the beans from farmers, as acidity levels were sometimes more than double the European Union ceiling. Dry weather and bad storage are believed to be responsible for the bad beans.

Although it is hoped improved, but late, rains could see better beans come from the April-September mid-crop harvest, worries remain. The rains were quite heavy in mid-April for instance. As a deluge tends to make pods fall from trees, the harvest may not be bumper. Also, heavy rains raise the risk of a disease or pest outbreak. They also make road transportation more difficult, as roads become less than ideal.

Still, a supply crunch is highly unlikely. For the 2016-2017 season, the ICCO forecasts in its February market review that world cocoa bean production would increase by about 15% to 4.55 million tons, with grindings to also rise by about 3% to 4.24 million tons.

Out of this, Côte d’Ivoire is expected to produce at least 1.9 million tons, 42% of the world total and 20% more than its production of 1.58 million tons in the last season. ICCO projections for Ghana in February for the 2016-2017 season is 850,000 tons. However, Cocobod lowered the target to 800,000 tons in March, a little above the 780,000 tons it produced in the previous season.

An African Darling For Investors

With a glut of the commodity in Côte d’Ivoire and room for more in Ghana, unsurprisingly cross-border smuggling has been rampant. Depending on the times, cocoa price disparities between the two countries tend to encourage smuggling either way. Although farmgate cocoa prices were set at 1,100 CFA francs per kilogram by the Ivorian Coffee and Cocoa Council for the 2016-2017 main crop harvest, a supply glut due to stockpiles in warehouses from crops as late as December have crashed prices. Suddenly, the 900 CFA francs per kilogram for the commodity in Ghana seemed like a steal. Guinea has also been a beneficiary of Ivorian cocoa smugglers, where it is sold for about 850 CFA francs per kilogram. Such is the despair that Ivorian grinders have been able to strike attractive bargains, with offers ranging from 500 to 600 CFA francs per kilogram. A common market would eliminate these distortions.

Incidentally, the prices for manufactured cocoa products, such as liquid deodorized butter and natural powder, have been steady this year. With cocoa prices so low, and European manufacturers enjoying a boom, there couldn’t be a stronger case for more value addition by African producers. – Written by Rafiq Raji