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Ivory Coast, Ghana add ‘living income’ cocoa premium to fight poverty

ABIDJAN/LONDON, July 10 (Reuters) – Top global cocoa producers Ivory Coast and Ghana have imposed a fixed “living income differential” of $400 a tonne on all cocoa contracts sold by either country for the 2020/21 season, an official letter seen by Reuters shows.

The premium, which replaces an earlier proposal for a floor price for cocoa contracts, is part of a wider plan to combat poverty among farmers in Ivory Coast and Ghana, which together account for more than 60% of global supply.

Cocoa from Ghana and Ivory Coast already trades at substantial premiums to the futures market due to its quality.

Chocolate makers including Mars, Olam and Hershey’s told Reuters they support efforts to relieve farmer poverty, but traders said the plan could lead to surplus production and might eventually prompt them to seek other sources of supply.

The West African neighbours said last month they would fix a minimum price of $2,600 per tonne free-on-board (FOB) that chocolate companies must pay from the 2020/21 season if they want to access their cocoa.

Cocoa prices on ICE Futures Europe hit a one year high of 1,939 pounds ($2,424) this week amid confusion over a plan that marks the biggest shake-up of the cocoa market in years.

PAYMENTS TO FARMERS

Funds raised by the living income differential (LID) will be used to help increase payments to farmers, with the aim being for them to get 70% of a $2,600 a tonne (FOB) target price, the letter sent by the two governments to a trade federation says.

If market prices rise above $2,900 (FOB), proceeds from the LID will be placed in a stabilisation fund that would aim to ensure the governments can pay farmers 70% of the $2,600 target price when market prices fall.

Ghana and Ivory Coast both guarantee a farmer price at the start of each season.

The LID will apply in addition to the normal country differentials, the letter says.

“Short term they’ll win (on price) but how long will it be before industry reorganise themselves and Ivory Coast and Ghana have too much production they have to control,” said a Europe-based trader.

Ghana and Ivory Coast last month suspended forward sales of cocoa for the 2020/21 season to give themselves time to implement the new pricing mechanism.

Companies at a meeting last week in Abidjan to discuss the plan included Hershey, Mars, Blommer Chocolate, Cemoi, SucDen, Mondelez, Touton, Barry Callebaut, Cargill, Olam and Ecom Trading. (Reporting by Maytaal Angel in London and Ange Aboa in Abidjan; Editing by Kirsten Donovan, Nigel Hunt and Alexander Smith)

Source: Reuters

Ghana farmers sweet on cocoa minimum price drive

Kwame Boadu was forced to abandon his cocoa plantation to work in Ghana’s capital Accra, but when the government announced plans for a price floor he began dreaming of a return to his fields.

A higher guaranteed price for the crop means a cocoa farmer “can afford fertiliser, he can afford weedkiller, he can employ more labourers, so he can increase his production”, he told AFP.

And moreover, it would guarantee that farmers get more money when they increase output, the 34-year-old added.

Earlier this month key producers Ivory Coast and Ghana threatened to stop selling their products to buyers unwilling to meet a minimum price of $2,600 per tonne.

The two African nations — which together account for 60 percent of the world’s cocoa production — want to end a situation where cocoa producers make only $6 billion in a global chocolate market worth around $100 billion.

The move sent world cocoa prices briefly above $2,500 per tonne, but they have since fallen back below that level.

After spending much of 2015 above $3,000 per tonne, world cocoa prices slumped, fluctuating around $2,000 in 2017.

The price drop squeezed farmers, who welcome government intervention.

“We don’t have anything to sell apart from cocoa,” said Alhaji Alhassan Bukari, who heads up Ghana’s farmers’ union.

“So if the government has thought about the farmers, they come together to fight for the farmers, we support them,” he told AFP.

Cocoa is a key sector of the national economy, according to the Ghana Cocoa Board, both in terms of providing employment to around 800,000 families and generating revenue for the government’s coffers.

Ghana’s Vice President Mahamudu Bawumia said earlier this month at a meeting with farmers and buyers that Ghana and Ivory Coast made their proposal to ensure farmers get “a fair share of the wealth that the industry generates”.

Establishing a price floor would also help revive rural communities.

“A satisfactory price of cocoa beans will go a long way to complement the government’s investments in rural infrastructure and improve the wellbeing of the communities,” said Bawumia.

– From cocoa to chocolate –

But farmers aren’t the only ones concerned by the discussion over cocoa prices.

While chocolate has long been a marginal product in Ghana, despite the country being a major producer of its primary ingredient, in recent years a new batch of chocolate makers has set up shop.

Selassie Atadika, the chocolatier at Midunu, a maker of handcrafted chocolates, says she has noticed more local chocolate on the shelves in Ghana’s shops.

“I think in general there is more awareness, people are using it at more events and things like that so there is probably an increase in people’s interest in buying chocolate.”

These local producers have an interest in cocoa prices and fear a jump in prices could hurt their businesses.

Atadika said she hopes a price floor would help cocoa farmers.

But for those trying to develop chocolate as a product “issues remain, even if the price of cocoa beans does not change, the price of sugar, milk powder and electricity will still be a major influence in their capability to make the chocolate”, she said.

One thing is clear for her, however: “If the (cocoa) price goes up it will have a negative impact on us.”

But it isn’t clear that the price floor will impact domestic producers as the proposal concerns exports, which come from the main harvest.

Local producers buy beans from the second, smaller harvest.

Moreover, they enjoy a subsidy on the purchase of beans from this harvest, according to the Ghana Cocoa Board.

“What would make an impact on domestic chocolate makers is if there was a loosening of regulations regarding who can sell and buy main crop beans, which would open opportunities for new domestic sourcing routes for cocoa,” said Kristy Leissle, a cocoa industry expert and lecturer at the University of Washington Bothell.

– Added value –

A development which would benefit all is if more cocoa was processed in Ghana, capturing more of the value added in the industry.

“We need to add value in Ghana, so we can send the world’s best products from here,” said chocolatier Atadika.

Ruth Amoah, who makes high-quality chocolate for select clients, agreed.

“If you produce the best cocoa you should also produce the best chocolate,” she said.

Minimum prices could also encourage production in Ghana.

“It will be maybe cheaper to make your chocolate in Ghana and ship it out,” she said.

“So potentially it can mean more work, more white-label chocolate that we can be doing for other companies. So I think it’s encouraging for people in the industry.”

Source: Daily Mail News

What do farmers and the ICCO think of Ghana and Côte d’Ivoire’s minimum cocoa price?

 

The World Cocoa Farmers Organization (WCFO) is asking Ghana and Côte d’Ivoire to reconsider setting a minimum cocoa price, while the International Cocoa Organization (ICCO) is surprised the price was not higher.

The West African nations last week proposed minimum price of $2,600 per tonne of cocoa beans and suspended forward sales for the 2020/21 season until this floor price is implemented.

Speaking to Lumina Intelligence’s Sustainable Food & Drink Podcast , Sako Warren, secretary general of the WCFO, an 800,000-strong member organization of smallholders and farmer groups, said: “We believe that farmers should be the ones to communicate with their partners on what price they should sell their crop.

“We don’t think having a fixed ceiling is the answer.

“…We are more concerned about how farmers will get that money.”

ICCO expected $3,000

The International Cocoa Organization (ICCO) – a member organisation for cocoa consuming and producing countries, was not part of the floor price discussions.

But also speaking to the podcast, Michel Arrion, executive director of the ICCO, welcomed the move and said he would have expected a higher price.

“I was more expecting something around $3,000,” he said.

The new ICCO executive director, who was appointed in October 2018, said world market prices had declined dramatically since 1972 from around $15,000 per MT to $2,400 today.

“There’s nothing wrong in saying we need an increase,” he said.

“If a farmer produces one ton of cocoa per year the average income will be $2,400 a year, so it’s $200 a month which is well below the poverty line if you consider the cocoa grower is feeding seven or eight people in the household.”

Arrion hopes the minimum floor price will lead to an increased farmgate price that would support farmer income.

‘A manifest injustice’

Warren said any additional money from the minimum floor price should go to farmers as income rather than be invested in infrastructure.

WCFO’s press release is available in full below.

The president of Ghana said in a press release the minimum price protection aims to address “a manifest injustice”,   a $100bn chocolate industry where less than 5.75% of the value goes to the hard work of farmers, who often live in poverty.

WCFO calls for the world price for farmers

WCFO suggests farmers should receive the floor price for cocoa rather than the farmgate price.

Côte d’Ivoire’s farmgate price for the main crop last year equates to $1,281 per MT – representing 58% of the average world market price ($2,207 – Average of ICCO’s monthly averages of daily prices from October 2018 to end of March 2019).

In Ghana the main crop farmgate price was $1,407 per ton or 64% of average world market prices.

“Farmers are the business people who produce what they produce and have to sell it. So why should they have the farmgate price and not the actual price?” Warren asked.

WCFO is calling for governments to tax farmer income rather than to set a farmgate price.

“When farmers are better off they will improve the economies of their countries ,” said Warren.

Cocoa economies

Cocoa is a big contributor to the Gross Domestic Product (GDP) of Ghana and Côte d’Ivoire.

Cocoa beans – excluding cocoa butter, power and finished chocolate – generated $3.8bn for Côte d’Ivoire in 2017 making it the country’s top export, accounting for 37% of exports by value, according to OEC figures.

In Ghana, cocoa beans are the third largest export by value, making up 10% of exports or $1.8bn.

Next steps

WCFO will publish a roadmap on how farmers can be part of discussions in September at its conference, the Second Global Cocoa Farmers Conference (GCFC2), which runs from 25 to 26 September 2019 in Abidjan, Côte d’Ivoire.

The Ghana Cocoa Board (Cocobod) said in a press release , a technical meeting will be held on 3 July 2019 in Abidjan to fine tune how the floor price will be implemented.

The release also said other issues, such as traceability, the environment and child labour will be decoupled from the floor price discussions.

SOURCE: CONFECTIONERY NEWS

Cocoa prices soar as Cote d’Ivoire , Ghana threaten supply cut

Cocoa prices rose sharply on Wednesday after key producers Ivory Coast and Ghana threatened to stop selling their products to buyers unwilling to meet a minimum price.

The threat pushed the September forward contract for the commodity, listed in New York, to $2,540 a tonne, up 1.4 percent on the day.

The two African nations, which together account for 60 percent of the world’s cocoa production, summoned buyers to Accra for a two-day meeting demanding a price of $2,600 per tonne.

At the end of the meeting, Joseph Boahen Aidoo, chief executive of the Ghana Cocoa Board, told a news conference that their demands had been accepted in principle by the participants, but that there would be a follow-up meeting to work out how to implement the agreement.

“Ivory Coast and Ghana have suspended the sale of the 2020/2021 crop until further notice for preparation of the implementation of the floor price,” he said.

Calling the move “historic”, he said that “this is the first time when the producers have called consumers and the first time whereby suppliers have called buyers to come and engage on price,” he said.

“Over the years it has been the buyers who have determined the price for the suppliers.”

Earlier, on the sidelines of the meeting, the chief of Ivory Coast’s coffee and cocoa council, Yves Kone, said the industry needed a price that amounted to “a decent compensation” for workers’ efforts.

The world’s chocolate market is worth around $100 billion, of which only $6 billion go to cocoa producers.

But Casper Burgering, commodities analyst at ABN Amro, told AFP that the current price rise may turn out to be temporary, as supply was more than sufficient to meet world demand.

Another analyst, at Commodafrica in Paris, said however that drought in Ivory Coast could lead to a shortfall in the coming cocoa harvest, putting upward pressure on prices.

Source: Dailymail (UK)