Willy Wonka Strategy: World's Top Cocoa Producers Strategize to Influence World Prices 2

Cocoa has had a landslide year

Cocoa has seen a landslide year when it comes to pricing. From over $3,000 per metric tonne in August 2016, the price of cocoa is under $2,000/MT currently; down 34.11% over the past year alone. Cocoa-tracking US exchange-traded notes such as the iPath Pure Beta Cocoa ETN (CHOC) and the iPath Bloomberg Cocoa SubTR ETN (NIB) are down 31% and 35% over the past year, respectively.

According to the International Cocoa Organization (ICCO), the industry has a global surplus of 371,000 tons of the agricultural commodity (DBA) this season. Ivory Coast alone is on track to produce a record 2 million tons of cocoa this year. According to Dr. Owusu Afriyie Akoto, Minister of Food and Agriculture, the decline in the price of the cash crop was costing the two countries nearly $2 billion per year.

World’s top two cocoa producers have a plan

Ivory Coast and Ghana have together been developing a strategy to gain greater influence over world cocoa prices. Essentially, the world’s top two cocoa producers want to create a buffer stock of cocoa beans in specialized warehouses. This would help exert supply pressure in the market for cocoa beans to restore prices. Chocolate factories may therefore witness a rise in raw material (cocoa beans) costs if the plan goes through.

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The move is also aimed at encouraging use of the raw material domestically and reducing overdependence on the international market (ACWI) (VTI). Accordingly, the two West African countries have applied for a $1.2 billion loan to the African Development Bank (AfDB) to help pay for the infrastructure required in the process.

Increasing chocolate consumption, locally

While influencing world cocoa prices remains the primary motive behind the loan plea, focusing on increasing local processing of chocolate is also on the cards. Interestingly, 3 African nations: Ivory Coast, Ghana, and Cameroon, figure amongst the top 5 cocoa producing nations. However, Africa (EZA) processes a negligible amount of chocolate sold globally. Accordingly, domestic chocolatiers such as Instant Chocolat in Ivory Coast along with Cocoa Processing Company’s ’57 Chocolate and Midunu Chocolates in Ghana, are already on track to cash in their proximity to local feedstocks. By 2020, Ivory Coast aims to process 50% of its raw cocoa locally—up from 1/3rd currently.

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