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December 08, 2011

State cocoa board established in Côte d’Ivoire

The government of Côte d’Ivoire has announced the establishment of a ‘state-controlled cocoa body’. This will bring under one body the functions of four current organisations, and will include international marketing of the cocoa crop. Marketing activities are likely to commence in early 2012. By engaging in forward selling, the new cocoa body ‘aims to encourage certainty and stability in the country's cocoa industry, and help enhance the prosperity of growers’. However this could serve to flood global markets, given the scale of Ivorian cocoa production.

Analysts suggest that buyers may be wary of concluding forward contracts with an organisation without an established track record, in a country newly emerged from civil war and where political instability still threatens. It is maintained that the new body cannot simply replicate the experience of the Ghanaian state cocoa authority (Cocobod), given the well-established market presence of the latter.

With the establishment of an Ivorian state-controlled cocoa body, potentially scope exists for closer collaboration between the two major West African cocoa producers. This could include the area of marketing, with the experience of the Ghanaian authority being deployed to provide assistance to the newly established Ivorian body, in order to prevent its operations from undermining established markets. Such collaboration could also offer scope for coordinating policies on producer prices, thereby reducing cross-border smuggling of cocoa.

The impact of this decision on the short term (i.e. in 2012), could be a drop in world cocoa prices, as Côte d’Ivoire will be putting two crops on the market: the current 2011/12 crop, to be sold more or less on spot markets, and the forthcoming 2012/13 crop to be sold on the futures market. According to certain traders, this could lead to a drop on London futures markets to £ 1,400 a tonne.

Looking further on, if Côte d’Ivoire does want to compete on world markets and keep the lead, a reform is not only necessary but vital. However, the success of this reform depends on the pace of its implementation, which could be quite slow given what is at stake. One of the aims of the reform is to reduce the number of intermediaries between farm and export of cocoa beans (currently there may be up to eight) in order to reduce the costs and increase the overall efficiency of the cocoa supply chain, thereby allowing producers to capture a higher percentage of the sale price.

Small scale cocoa farmers face additional challenges such as replacing ageing trees, an issue that should be taken into account in the government’s wider efforts to reorganise the sector. This could build on recent initiatives such as the memorandum of understanding signed by Cargill and ANADER, Cote d'Ivoire's national rural development agency. This involves support to farmer training and farmer organisation and the distribution of 600,000 cocoa tree seedlings to help improve and renew existing cocoa farms. Such public–private sector partnerships could be multiplied to embrace a sector-wide rehabilitation programme.

Agritrade

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