Plans for Ivory Coast 50% farmgate cocoa price rise hailed as a ‘historic landmark’

A key move by Ivory Coast has been hailed a ‘historic landmark’ that will see the country’s latest cocoa harvest increase to 1500 CFA francs kg/ $2.47, representing a 50% rise to farmgate prices, which has been broadly welcomed by industry observers, reports Neill Barston.

The decision, which was arrived at through the reported intervention of the West African nation’s president, Alassane Ouattara, has been announced by the country’s Ministry of Agriculture. It comes in the wake of major spikes in the global cost of the key industry crop, which has seen prices rise to $10,000 a tonne on the Futures commodities markets in New York, representing a record-high in nominal trading terms.

Such elevated costs – which have been attributed to a combination of factors including sustained supply deficits over the past two years, poor harvests resulting from adverse weather, that in turn have exacerbated crop disease. The consequent cocoa shortfall has translated into pressures on global markets, and seen a high level of investment activity put at $8.7 billion, including from hedge funds and the wider investment sector, that have also reportedly influenced cocoa prices and combined to deliver a ‘perfect storm’ of conditions.

Furthermore, there have been other pressures on land within the region have also been notable, including cocoa processors reportedly having a lack of access to sufficient stocks of beans to handle, worsened by the ongoing issue within West Africa of ‘galamsey’ illegal gold mining, that has seen financially hard-pressed farmers under pressure to sell up to prospectors. This has led to campaigns from authorities in the two core supplier nations targeting farmers, urging them not to sell-up to mining operations.

There have been further contributory factors that have also been raised by the sector, including decisions by the Ivory Coast and Ghana governments to sell crops at an early point (whereby farmers in Ivory Coast and Ghana have missed out on the spikes that have occurred over the past 12 months), with prices having tripled since that point a year ago. But this is set to be addressed with the latest settlement from the government.

As previously reported by Confectionery Production, the present price hikes that have seen cocoa traded at $10,000 a tonne this month, and at a similar level in the London-based ICE commodities platform, had served to highlight the gulf between those sums and what has actually been paid to farmers most recently. The present contracts with farmers in Ivory Coast had been set at $1,800 a tonne, a mere fifth of what was being achieved on Futures markets.

This sparked concern within cocoa communities this past week, with industry reports of agricultural workers preparing to go on strike at the situation, which even led to calls for the resignation of Ivory Coast’s regional industry director, Yves Brahima Kone.

However, there has been a sense of relief from industry observers at the latest twist in the saga, which has resulted in the uprated payments to Ivory Coast farmers – though it is not yet known whether Ghana will follow this same measure in increasing farm gate prices by 50%.

Industry reaction

Commenting on the latest decision, Alex Arnaud Assanvo, executive secretary of the Ivory Coast Ghana Cocoa Initiative (CIGCI), believed it was an extremely welcome step to see farmers gaining a comparatively higher wage in relation to wider trading prices.

He said: “If current price levels can be maintained through stabilised fundamentals, so the true cost of cocoa including externalities (regulations, social and environmental cost etc…) we will be much closer to enabling a living income through cocoa farming as an industry. We all know how the system works and there are histories . We know that there will be a crash after the bull rally. We know how damaging this will be for producers.

“And it’s time to prepare for the crash while rebuilding the incentive to grow cocoa. Five years ago, the governments of Côte d’Ivoire and Ghana took the historical initiative to convene the main actors of the cocoa supply chain, to set up a mechanism protecting farmers income from volatile world prices. The vision was clear: market prices can be an efficient tool to adjust short term supply and demand, but they are disconnected from the true cost of cocoa and from farmers livelihood. The living income differential came to life to offer the minimum minimorum to farmers.The price that CI has announced shows that we are entering a new era as I predicted few weeks ago in Amsterdam. And I can tell you that both countries have been in talks past few days as part of our strategy for joint strategies and efforts.”

Meanwhile, Cocoa expert Marc Donaldson, a former executive director of the Cocoa Association of Asia, also shared his optimism for the deal, highlighting the need to attract a younger workforce into the industry, particularly given that the sector’s average farmer age is over 50, with more youthful generations reportedly opting against a career in agriculture, particularly within cocoa, which has seen many farmers earn wages of well under $2 a day, at a rate below UN-defined poverty levels.

Donaldson said: “This is a historic landmark moment for the cocoa industry. We must take the once in a lifetime opportunity to re-configure the way the “money” supply chain reaches all the way up-stream, for the future, not just from now.

“Just think about it, if for the IC main crop, the famers could be paid an additional $4 per kg, we will delivery more direct funding in one action, that the industry might invest in many, many months. Only then might cocoa become sustainable, as it will attract young people into the farming community, which is desperately needed.”

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