Last week the price of Cocoa beans hit $ 6,200 per tonne, in the US futures market. 12 months ago the price was hovering around $ 2,600 per tonne. The annual growth of the Cocoa beans piece is around 140 %. Cocoa beans are now traded above 1977 prices by 15 percent. Unlike most commodity prices which subsided in 2023, the price is on fire. What are the reasons? Blomberg recently has shed light on the main causes of this problem?
Cocoa trees flourish in a narrow band of 20 degrees north and south of the Equator. Thus only a few locations and countries are a hostile place for them.the Hotspot is west of Africa. Ivory Coast, Ghana, Cameron and Nigeria produce around three fourth of the global supplies. Ivory Coast is responsible for over 40 percent of production.
Yet the production is not industrialized. It is vastly dependent on very poor peasants who farm the trees for a minimal income. Félix Houphouët-Boigny is the father of Cocoa plantation in Ivory Coast. He is the first president after independence. Under his rule from 1960 to his death in 1993, he transferred the country to the major Cocoa producer in the world. Thanks to the Cocoa boom of the 1970s he was able to build a new capital. In order to boost Cocoa production he attracted millions of farmers with different incentives, including land ownership for the peasants. Thanks to his policies, the world had three decades of relatively cheap Cocoa supplies. But this seems to be over. The last round of major Cocoa planting happened around the 2000s. It means the youngest Cocoa trees of Ivory Coast are currently around 25 years old. This is well past their prime age for production. With low amounts of fertilizers and pesticides, the production is low. It now has become more dependent on the weather conditions. This year unseasonal rains linked to El-Nino weather pattern hampered the production, caused this abrupt surge in the prices.
Local Cocoa market in both Ivory Coast and Ghana is highly regulated by the government. Governments set the prices and purchase the beans in advance through a forward contract. But the controlled official prices are much lower than the global prices. For 2023-24 harvest Ivorian farmers would receive 1000 African Franc per kilogram, that is around $1.63. In other words, the price is $ 1,603 per tonne, around 25 percent of current global prices. While farmers in other countries namely Brazil and Indonesia are enjoying the current prices and turned part of income to investment and more Cocoa farms. The Ivorian farmers are not stimulated by current prices.
Source: Bloomberg
