Raw materials markets are crucial to the global economy and fascinating. And for good reason: their importance is only equaled by the opacity that surrounds the major players in this universe of insiders. The cocoa sector is no exception. Fanta Bernath de Font-Réaulx, a recognized specialist in this segment after having been active for a long time in international commodity trading, deciphers for Ressources the subtleties of this market as well as the challenges facing the continent’s producing countries.
Ressources : Many recent studies predict a long-term increase in cocoa prices, mainly due to the increasing demand from Asian countries. Do you share this opinion?
Fanta Bernath de Font-Réaulx : I would be more nuanced on this subject. It should first be recalled that among the many possible uses of cocoa, it is the demand for chocolate that most influences the price of this commodity. On this point, there is undoubtedly more demand for chocolate worldwide, especially from the Asian countries, who are seeing a change in the taste of their consumers. But demand alone cannot explain the long-term trend in cocoa prices. The factors that constitute the supply must also be included in the assessment grid: climatic conditions, soil quality, the effectiveness of public incentives, geopolitical risk, etc. These are factors that will ultimately determine the relative abundance – or scarcity – of supply at a given time and that are, by definition, always random. Finally, a final variable must be taken into account to explain price volatility: financial speculation. This is the basis of commodity futures markets and, in a context of declining margins on the traditional activity of traders – the brokerage of agricultural commodities – some traders (affiliated or not to the concerned supply chain) may be tempted to take speculative « paper » positions (purchase/sale of futures contracts) to earn a little more.
R. : However, not all actors in the value chain seem to benefit from their activity in the way, starting with cocoa producers. To reverse this trend, some African countries are seeking to organize themselves. What do you think, for example, of the recent joint efforts of Côte d’Ivoire and Ghana (1) to improve the prices paid to farmers?
F. B. : This initiative is a step in the right direction, but again, a detailed response is needed. More than an improvement in prices, it would be better to talk about a convergence of prices between Ivorian cocoa, which is less well paid, and Ghanaian products, which are better paid. But the real question is elsewhere: why is there a price differential offered to producers on both sides of the border? Although the two countries have different mechanisms (2) for purchasing cocoa, the price gap is basically due to one key factor: the quality of the commodity. Côte d’Ivoire may be the world’s number one in terms of quantity of bean produced, but other countries are doing much better in terms of quality. Starting with Ghana, whose cocoa quality is more consistent than in neighboring Ivory Coast. Under these conditions, it is normal for Ghanaian growers to obtain a kind of « prime » based on merit. On this point, there is no doubt that Côte d’Ivoire would have much to gain from the Ghanaian experience. Some recent Ivorian measures taken to better monitor cocoa export quality are also beginning to bear fruit.
1- The two countries, which are the world’s two largest cocoa producers, reached an non-binding agreement in June 2018 to develop a common strategy for the sale of cocoa beans.
2- Ghanaian cocoa is purchased directly from the farmer by the Ghana Cocoa Board, which then sells it to exporters. In Côte d’Ivoire, the Cocoa Coffee Council sets a minimum price, but the beans are purchased directly by traders from the farmer.