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Sweet Revenge of West African Cocoa Cartels

Rekya-Cordelia "Nouna" Anthony

WEST COAST, Africa - When one first thinks of chocolate, usually Europe comes to mind. As many connaisseurs of chocolate can attest, there is no sweeter pursuit than wandering the streets of Belgium or Switzerland in search of a piece of "brown heaven." Ironically, the natural resources which are critical to the success of these chocolatiers, and for which these countries are renowned, start as cocoas tree grown a continent away, in Africa. In fact, because of the plant’s need for a warm, tropical climate, there are no cocoa fields in Europe.

Ghana and the Ivory Coast, small neighboring countries on the west coast of Africa, produce over 60% of the world’s cocoa. Yet, despite demand being at an all-time high and the industry reaching a peak of $107.3bn per year, some cocoa farmers in West Africa are more impoverished now than they were in the 1970s and 80’s.

Seeking to rectify this inequity, the presidents of both countries entered into a partnership. They formed an alliance that many have dubbed the chocolate equivalent of the OPEC (Organization of the Petroleum Exporting Countries) or “COPEC.” The coalition decided to stabilize the market by assessing a $400 per metric ton premium on top of the current benchmark cocoa futures prices, which is currently trading at $2500 per metric ton.

Manufacturers have agreed to the premium, after first pushing back against Ivory Coast and Ghana’s first proposal of a $2600 per metric ton minimum, stating that their interests are aligned with that of the West African cocoa farmers.

Mars’ global communications director, Josh Gerbino, said “Mars believes boosting the income of cocoa farmers while ensuring cocoa is grown sustainably is key to a thriving cocoa sector. “ A spokesperson for Hershey, Jeff Beckman, said that “cocoa farmers should be able to support their families and earn a decent standard of living…”

Though all of this may seem altruistic on the part of the manufacturers, Jonathan Parkman, the co-head of agricultural trading at Marex Spectron, believes that chocolate prices will undoubtedly go up, and he doesn’t expect the multi-billion dollar companies to foot the bill.

“Who’s paying the bill for this?” Parkman asks, “ultimately, it’ll be the consumers.”

Eric Bergman, the vice President at Brokerage JSG Commodities Inc., concurs, stating that the new premium “is essentially a $1.2 billion tax on the cocoa industry”.

In the past, when different governing bodies have attempted market manipulate, the results were short term at best. Ultimately, when commodity prices rose, the demand subsequently fell, thus defeating these efforts. For example, when chocolate prices rose to $3000 per metric ton, supply declined sharply.

In the short term, the premium may boost supply. After decades of subsistence farming, this opportunity for greater returns on investment will incentivize growers. However, as prices rise, consumer demand for the final product will likely fall, resulting in a surplus supply, which farmers cannot sell to other markets. In the long run, some analysts fear that this premium may not be in the best interest of the farmers.

Yet, the inequity in the market supply chain in which the farmers have relatively little leverage, this may be their best bet since being solely dependent on supply and demand has not benefited them. As the adage goes, "the definition of insanity is doing the same thing repeatedly yet expecting different results." Thus, this approach, one in which partnerships with the farmers' respective governments, provides them with the best-negotiating positions.

According to Bloomberg.com, when supply exceeded demand in 2018, the price per metric ton plummeted steeply, and farmers and their countries were left reeling. The Ivory Coast even delayed a plan to extend electricity to villages as a consequence. However, the net benefit, according to individual analysts, is that the alliance between these two powerhouse producers of chocolate is worth any potential market downturn.

Together, these nations grow more than half of the entire world’s chocolate supply. Their presidents and their administrations have been working on these proposals for years, and with change comes pain. Still, the world's desire for and consumption of chocolate is not likely to diminish. As Jonathan Parkman put it, “you’re talking about two-thirds of the world’s cocoa"… The world cannot do without that cocoa,” and therefore, Ghana and Ivory Coast hold indomitable power.

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