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October 24, 2009

Struggles of Ivory Coast’s cocoa farmers are set to force up the price of chocolate

by Catherine Boyle

Cocoa prices hit a 30-year high yesterday (October 23) as poor weather threatens to drive the price of chocolate up again for Western consumers. Cocoa hit $3,412 a tonne in New York as concerns deepened about demand outstripping supply for the first time since 1968. This was the highest price for cocoa futures since June 1979, although prices eased back slightly later.

Production in Ivory Coast, which provides about a third of the world’s cocoa beans, has slowed as a result of poor weather and under-investment after the 2002-03 civil war. This year’s harvest has been damaged by dry weather, pests such as the Pod Borer moth and swollen-shoot disease. Western consumers have already seen the price of chocolate rise, at the start of this year, and the cost of a standard 49g bar could climb even higher in 2010 if the high cocoa prices continue.

Laurent Pipitone, senior statistician at the International Cocoa Organisation, said: “We have now had three consecutive years of supply declining. The Ivory Coast has reached a peak. Farmers don’t use many chemicals and pesticides there and they need to use more. They need to invest more in chemicals and other farming techniques to increase their yields.” Mr Pipitone said that he could not predict whether cocoa would stay at its present highs.

Western demand is growing: Europe’s cocoa grind rose by 16.5 per cent year-on-year to 406,080 tonnes in the third quarter of 2009, according to the European Cocoa Association. The fashion for more upmarket chocolate has helped to boost demand as it typically has a higher cocoa content. The surge in price also indicates that cocoa is increasingly being used for financial investment rather than merely sold to industry.

Companies such as Cadbury and Nestlé buy their cocoa about three months in advance, so the recent high prices will not have had an effect on their costs yet, but will be felt early next year. Nestlé, the Swiss maker of Smarties, plans to spend £67 million providing millions of disease-resistant plantlets to cocoa producers and retraining farmers, in an attempt to stop another shortage.

The Ivorian Government is trying to address the problem by starting to regulate cocoa bean farmers. A previous system, under which the Government sold most of the nation’s cocoa production on to the world market and fixed prices for farmers, was abandoned in 1999.

Tito Tiehi, an official in the Ivory Coast’s agriculture programme, said: “There will be a strong structure for controlling the many aspects of the sector. We will implement a policy to defend Ivory Coast’s place as top producer and even win back market share worldwide.”

The Fair Trade Association advocates setting a minimum price for cocoa so that farmers are less vulnerable to market oscillations. A spokesman for the association said: “In our experience, whatever the current upturn in prices, little may go back to the farmers. And, even if they are benefiting somewhat at the moment, they could soon be once again at the mercy of low prices. The wild fluctuations in the cocoa market make life extremely unstable for farmers.”

Cadbury, the maker of Dairy Milk, did not comment on how much it thought cocoa would cost the company when it reported this week, but it usually tells the market about its anticipated input costs at this stage of the year. Andrew Bonfield, Cadbury’s chief financial officer, said that it had not yet calculated how much it would need to spend buying cocoa in 2010 and would update the market on its cost-inflation outlook in February.

The Times

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