The 100,000 cocoa farmers of Ghana’s Kuapa Kokoo co-operative eke out hardscrabble lives despite producing the raw material for a global chocolate industry worth an annual $100bn in retail sales.
The world’s two largest cocoa producing countries, Ivory Coast and Ghana, which account for 60 per cent of global production, have added a supplement to the sale price in an effort to alleviate poverty. But a dispute over whether global buyers were prepared to pay illustrates how hard it will be for the two nations to control and lift prices in an industry dominated by millions of smallholders.
“We are not asking too much from industry, just meet our cost of production and help us get something small to live,” said Mr Okyere aa representative of the co-operative. “I don’t think it’s too much to ask, because once they do that they can still make big profits.”
Antonie Fountain of the Voice Network said some of the confectionery groups were putting profits ahead of farmers’ wellbeing.
The disagreement centred on a $400-a-tonne “living income differential” (LID) added to the price of cocoa harvested from this crop year, bought from Ivory Coast and Ghana. In the past few years they have collaborated to try to raise the share farmers earn — just 6.6 per cent of the sale price of a bar of the confectionery.
The Ivorian Conseil du Café-Cacao and the Ghana Cocoa Board this month accused the chocolate producers of trying to avoid the LID after US group Hershey took the rare step of sourcing cocoa beans from the futures market in New York. Analysts said this meant it did not have to pay the supplement. It demonstrated the limited leverage held by producers.
Kobi Annan, Accra-based consultant at Songhai Advisory, a business intelligence firm asked, “...why do countries who produce 60 per cent of a commodity have no real power in setting its price?”
A Ghanaian official commented: “Your negotiating position is not that strong, so you’re entirely dependent on public sentiment, environmental sustainability concerns, child labour concerns, income inequality concerns, to make the other party feel a little guilty so they contribute more.”
“If you want prices to rise, you do not produce considerably more than the market needs,” said Derek Chambers, former head of cocoa at French trader Sucden, remarked.
Part of the problem is that rising farmgate prices — set by the government — and an increase in sustainability programmes have encouraged millions of small farmers who are desperate for cash to produce more, weighing on market prices. This year, an election year in both countries, governments jointly raised the price by about 20 per cent to $2,600 a tonne, still $500 less than the Cocoa Barometer estimates farmers need to earn a living wage. Global cocoa output has grown 18 per cent over the past five years to 4.7m tonnes, with top producer Ivory Coast producing 2.1m tonnes in the last crop year, up almost a third, according to the International Cocoa Organisation of producing and consuming countries. Ghana produced 800,000 tonnes, up 3 per cent.
There is now rising concern that Ivory Coast and Ghana will be left holding unsold cocoa in a year when the harvest is expected to be at record levels, analysts say.
Analysts said efforts by Ivory Coast and Ghana to collaborate and control prices would struggle — partly because of smallholders’ desire for cash and rival producers’ ability to expand market share.