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January 26, 2009

African cocoa enjoying price boom

by Olaolu Olusina



There is no doubt that cocoa is currently blazing a trail. Now regarded as one of the market's best performing commodities, it has defied the current global meltdown that is sending shivers down the spines of economic policy makers. The price of the commodity hit a 23-year high last December.



Coming at a time when the price of crude oil is sliding in the international market, the average price of cocoa keeps appreciating, with London and New York March deliveries standing at $2,581.6 per tonnes as at early January. Expectations are high that the price may peak at $3,000.This is surely a good development for West and Central African countries which account for 70 per cent of the world's cocoa output.



From Nigeria through Ghana, and down to Cote'd'Ivoire and Gabon, cocoa is currently enjoying a boom. In South West Nigeria, which is regarded as the cocoa belt of the country, accounting for 70 per cent of Nigeria's annual production of 242,000 metric tonnes, cocoa merchants are reaping a bumper harvest, with the price going as high as $2,148 per tonnes. In the Ashanti region of Ghana, commercial activities in the cocoa sector are currently at the peak.



While output for last year stood at about 650,000metric tonnes in Ghana, with a projection of about 700,000 tonnes for the cocoa season, Nigeria put up a not-too encouraging 242,000 metric tonnes as at the end of last year. In Nigeria, for instance, the free fall of the naira against the dollar is also giving cocoa a boost as the commodity is valued in dollar at the international market.



The story is not different in Ghana and Cote d'Ivoire as increasing demand, buoyed by increasing value addition, is pushing up the price of the commodity.Market watchers, in fact, believe that the price may go up further as the shortfall in Cote d'Ivoire's output of 396,000 metric tonnes from the previous season's 721,413 tonnes is bound to affect supply as the country alone accounts for between 35 and 40 per cent of the world output.



Bush fires in Ghana, low rainfall in the West African region and the unsustainable methods of production had resulted in the low production recorded despite increasing demand.



Placing the development in proper perspective, Michael Owusu-Manu, Head of the Economics Department at the Cocoa Producers' Alliance (COPAL), an intergovernmental organisation with headquarters in Lagos, Nigeria said what is pushing up the price is because “consumption is increasing and output is decreasing.”Owusu-Manu stated that “more value addition is also taking place in Ghana, Nigeria and Cote d'Ivoire,” adding “the dollar is getting stronger, thus making the real rate of cocoa higher, when compared to what we had about six months ago.



”While all of these, ordinarily, should offer a ray of hope and be seen as a good development for a region in dire need of full control of its produce at the international market, analysts are worried as to how long the boom will last, with concerns being raised over declining productivity in the face of increasing demand.



Owusu-Manu confirmed this fear; saying despite the current boom, cocoa production in West and Central Africa is not done in a sustainable manner. According to the COPAL official, African farmers are still cultivating larger expanse of land for fewer yields as against what obtains in other regions where smaller farmlands are producing higher yields. The total area under cultivation worldwide in 2007, he disclosed, was 7,415,081 hectares with production standing at 4,043,784 metric tonnes. Out of this, Owusu-Manu said, Africa which cultivated 4,738,232 hectares produced 2,614,749 metric tonnes whereas America with 1,486,004 hectares produced 108,398 metric tonnes.



The COPAL official further stated that Asia and Oceania with only 731,345 hectares produced 1,140,963 metric tonnes during the period.Explaining further, he said Asia and Oceania showed a good potential of overtaking Africa as its yield per hectare stood at 772 metric tonnes whereas in Africa, the yield per hectare was 539 tonnes with America recording 327 tonne per hectare in 2007.This scenario, Owusu-Manu said, poses a great challenge as Africa may eventually lose its prime position to other regions with sustainable methods of production, with Asia and Oceania strongly showing great potential.



It is important to note that the World Commission on Environment and Development (WCED) has defined sustainable development as "development that meets the needs of the present without compromising the needs of future generations to meet their own needs."Given this premise, Owusu-Manu, therefore, affirmed that cocoa production can only be said to be economically sustainable "when it is at all times sufficiently attractive for small holder farmers to properly maintain their farms, rejuvenate their farms as required and to buy the necessary production tools and inputs to achieve optimal yields.”Maintaining that cocoa farming “should be seen as a business and not a destination,” he said with farm size in most West and Central African cocoa-producing countries averaging one-and-a-half to two hectares, the farm family cannot earn enough to get out of poverty.



What is therefore needed, he affirmed, is “a system that allows cocoa to play a strategic role in improving the livelihood of cocoa farmers, their families, communities and the country concerned.”Stakeholders, it must be noted, had also expressed concerns at the gloom starring the sector in the face, despite the apparent potential that could be derived. Only last October, about 250 delegates from the COPAL member countries converged on Kumasi in the cocoa-producing region of Ghana for the 'African Academies Cocoa Symposium 2008’.



The aims, among others, were to come up with a vision for cocoa in West and Central Africa in the next 30 years; to develop the logic to get there; and to secure commitment to a partnership for the future of cocoa in the region.Sponsored by MARS Incorporated in collaboration with COPAL, and co-sponsored by the Governments of Cameroon, Cote d'Ivoire, Ghana, Nigeria, Liberia and Togo, the Kumasi gathering, which had as its theme, 'Theobroma cacao: the Tree of Change', was a follow-up to the 2006 cocoa symposium that was held in Washington DC, United States of America.



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