By Ed Cropley
(The author is a Reuters Breakingviews columnist.)
LONDON, June 14 (Reuters Breakingviews) - Call it the Organization of Cocoa Exporting Countries. Ivory Coast and Ghana have taken a big step towards creating the world's first cocoa cartel. With nearly two-thirds of global supply - way more than OPEC's slice of the oil market - that could be bitter news for chocolate lovers. But if they really wanted a taste of cocoa's riches, the West African neighbours would be better off focusing on processing beans.
There's a chance the agreement falls apart, which is why prices only jumped modestly. Benchmark cocoa futures hit an 11-month high of $2,552 in New York on Wednesday but have since eased to $2,499 a tonne, a 4% discount to the nascent cartel's floor price. That said, farmers still have something to smile about. Cocoa fetched around $3,000 a tonne for most of the period from 2014 to 2016, before crashing to nearly half that level due to bumper Ivorian harvests.
But if they really wanted to help, Ivorian President Alassane Ouattara and his Ghanaian counterpart Nana Akufo-Addo should focus on processing cocoa beans, rather than just growing them. Of the $100 billion spent annually on chocolate, the African Development Bank reckons the continent keeps just $5 billion. As with other commodities like diamonds or crude oil, the labour-intensive work happens elsewhere. According to International Cocoa Organization figures, Ivory Coast ground just 559,000 tonnes of beans last year - less than the Netherlands.
Building a processing sector requires lots of investment and expertise, but Indonesia shows what is possible. In 2010, 80% of its 500,000 tonnes of cocoa exports were beans, according to an analysis by Fitch Solutions. In 2017, that proportion had fallen to 5% as production of cocoa butter, paste and powder soared. Making a similar switch in West Africa really would be sweet.
- Ivory Coast and Ghana, which together control nearly two-thirds of the world's cocoa supply, agreed on July 12 to impose a minimum price of $2,600 per tonne of the chocolate ingredient.
- The two countries also suspended forward sales of the 2020-21 cocoa crop in an attempt to secure better prices for farmers.
- Cocoa futures hit an 11-month high of $2,552 per tonne on July 12. Cocoa traded at $3,000 a tonne for much of the period between 2014 and 2016, but the price subsequently collapsed to almost half that due to production increases in Ivory Coast.
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Graphic: Cocoa power