Guarded optimism for African cocoa
Take it easy, take it easy. The future of the African cocoa
industry is not as gloomy as the current situation would suggest. This
observation is what emerges reading the report entitled La compvitu
cacao africain carried out by experts of CIRAD (Centre de cooption
internationals en recherche agronomique pour le dloppement) for the French
Ministry of Cooperation .
Based largely on the comparative advantages the African cocoa
producets vis-a-vis their competitors in South America and South East Asia, the
authors, in their analysis of trends in supply and demand, lay particular
emphasis on the cost of production. They take into consideration issues as wide
ranging as the scale of plantation, availability of virgin forests, soil
fertility and water retention, and the cost of labour. The game,
they say, is not up for African producers. Indeed, in the coming
years, cocoa will be one of the rare exportable products of the countries
of the Gulf of Guinea (Cdlvoire, Ghana, Nigeria, Cameroon, Sao
Tomamp; Principe, and Equatorial Guinea).
That is, at least, good news for a region that is increasingly
being marginalised in international trade and for which forecasts speak of
increased national or regional use of the traditional agricultural exports (palm
oil, coffee, cotton, etc) m the coming years.
If cocoa is men as an exception it is because the factors
militating against its domestic transformation are considerable: world
over-supply of ground cocoa (about 500 000 tonnes at present), a product with
high technological demands, minimum value-added, heavy transport costs from
points of production to points of consumption, and difficulty of storage in the
tropics, particularly for chocolates.
A vital source of foreign exchange for the economic development
of the West African producers (less so for Nigeria), cocoa has not earned much
foreign exchange in the past decade because of the over-supply in the world
market which has led to falls in prices. At the end of 1989, prices fell to
their lowest level in over 40 years. They have sin recovered slightly and
are hovering between UK £ 650 and £ 750 per tonne.
The over-supply is the direct result of the overproduction
caused by the revolution that has taken place in the industry in recent years.
At the turn of this century, the West African producers and Brazil accounted for
98 % of the world market. Indonesia entered the scene as recently as the 1960s.
It was followed by Malaysia, in a most dynamic way, only 8 years ago. Thus in
less than three decades, these South East Asian nations have become the
new pole in production to which West Africa has lost a big share of
the market, about 13 %.
The West African producers themselves have had varying fortunes
over these years: Ivory Coast has emerged from virtually nowhere in the 1940s to
be the biggest producer with 34 % of the world market, while the hitherto
leading cocoa nations of Ghana and Nigeria hold no more than 13 % and 8 %
Although no major upsets are expected in this pecking order in
the coming years, the CIRAD report forecasts a significant fall in Brazils
production, a less significant fall in Cameroons, and stagnation in that
of Malaysia, Nigeria and Ghana. Only Indonesia, whose production has
consistently been up in recent times, is expected to maintain this in the short
term at least.
The Report could not predict Ivory Coasts production,
unable to gauge the effects the reduction in the prices paid to farmers will
have on output. Ivory Coasts potential is put at around one million tonnes
per annum (about two-fifths of the worlds total). It currently produces
820 000 tonnes annually of which it exports 600 000 tonnes.
The Report notes that although world cocoa consumption has
increased substantially, neither the successful launching in 1972 of the
International Cocoa Agreement nor Ivory Coasts desperate attempts to
influence prices single-handedly in the late 1980s, have succeeded in
controlling supply: the quota system and regulatory stocks foreseen under the
Agreement have never actually operated let alone been effective.
A new accord has been difficult to secure, and it was in view of
the disarray among members, that the International Cocoa Council, in March 1990,
was obliged to suspend the Agreements economic clauses and to extend its
conditions for a period of two years, with effect from October 1990. The hope is
for a new and more effective Agreement to he concluded by October 1992.
The experience of the last 20 years shows clearly that market
forces are powerful factors in price determination. The report nevertheless
places considerable hope in an international agreement making a significant
contribution to the stabilisation of prices. Compiled before last
Novembers news of an official acceptance by Malaysia to join the
Agreement, the chances of such an agreement being eventually effective have been
enhanced. Malaysia, it should be noted, accounts for 10 % of the world market.
Stocks during the 1989/90 season were estimated at around
1300000 tonnes. Expressed in months of consumption, says the report,
they hardly exceed those of 1965 which did not prevent a rapid
recovery in the 1970s. But each recovery or boom in the industry has
always been followed, a couple of years later, by a slump. Any recovery this
time will be of short duration, according to the report, as this would give a
new lease of life to the industrial plantations in Malaysia and Brazil which
would, in turn, lead to overproduction and to another fall in price.
Although the threat posed by substitute materials remains as
research continues, the Report is optimistic as to a realistic increase in world
consumption of chocolates (the increases of recent years being more as a result
of manufacturers increasing the proportion of cocoa in chocolates rather than an
increase in the number of the consumers of the final products-a growth that is
It forecasts increases in consumption in the southern countries
of Western Europe-Spain, Greece, Italy and Portugal-where it is currently low-in
Eastern Europe where the potential is great, in the medium-term, and in Japan
where it will accelerate.
Cost of production
The global picture therefore appears encouraging, but this in
itself does not guarantee the West African producers a future in a competitive
world. The authors of the Report think that although climatic conditions no
longer have the importance they once had (frosts in Brazil, for example, which
not only influenced prices but gave African producers opportunities to sell more
of their cocoa on the world market) because of the appearance of a new centre of
production in South-East Asia, the cost of production will be crucial.
And in this regard, they pinpoint phytosanitary problems as
being a determining factor: in times of depression in prices, they say, the big,
rigid plantation structures of Brazil and Malaysia incur higher costs than the
relatively flexible system, close to gathering that the Ivorians, for example,
have, which can adapt the level of phytosanitary protection to the prices in
force. This, in spite of the West African producers being handicapped in a
variety of ways -state control (in most cases) compared to the free, private
system in operation in Malaysia and Brazil, high cost of transport, difficult
ecological adaptation of certain varieties and the presence of diseases, etc.
The West African producers, furthermore, appear less vulnerable
during long periods of low prices, and they have an additional advantage in
their extensive system of production, which is due largely to the existence of
pioneering fronts and of wet, fertile and virgin forests (open to
more peasant plantations and offering such plantations protection against dry
The importance of policy
The extent to which the West African producers derive the
benefits of these comparative advantages will depend on the kind of policies
they pursue: As the worlds biggest producer of good quality cocoa, Ivory
Coast is in a position not only to influence prices but also to compete
effectively with the potential rival that Indonesia represents. It must, for
example, reduce the marketing costs of its cocoa; Ghana and Nigeria, which along
with Indonesia, have the lowest cost of production and which have begun to
recover their erstwhile vitality thanks to better economic policies, have yet to
prove they can regenerate their plantations.
Cacao production by principal
production region 1975-2000 (in millions of tonnes)
The authors of this report recognise, however, that the optimism
they have expressed is dependent on the current situation not taking a turn for
the worse, for example a sudden increase in investment in Malaysia, its cocoa
becoming more viable and its production rising to more than 400 000 tonnes per
annum or alternatively a sudden fall in world consumption.