Cocoa Industry Agrees to Base Price

Buyers and sellers agree to a $2,600 per metric ton base

By STiR (coffee and tea magazine) staff

Chocolate and coffee are both $100 billion global industries facing a pricing crisis.

In June, the two largest cocoa-producing countries jointly announced they would no longer sell their raw product for less than $2.60 per kilo. The suspension of sales by traders and processors for 2020-21, announced by Le Conseil du Café-Cacao (CCC) and the Ghana Cocoa Board (COCOBOD), was endorsed by the Ghana Cocoa, Coffee and Sheanut Famers Association (COCOSHE) and Ghana Civil-Society Cocoa Platform (GCCP). Together these organizations, which harvest and process 65% of the world’s cocoa, convinced buyers to agree to a price floor.

Negotiations were lengthy and difficult but in July agricultural commodities trader Cargill, citing concerns about the long-term sustainability of cocoa production, agreed to price minimums for cocoa grown in Ghana and the Ivory Coast.

“We applaud the willingness of both governments to set a minimum floor price for cocoa beans and affirm our commitment to do more to ensure that this measure leads to sustainable increases in farmers’ incomes,” said Cargill Cocoa & Chocolate.

The decision was praised by the International Cocoa Organization, which represents cocoa consuming and producing countries.

Three years ago the price of cocoa abruptly fell 30% and remained below the cost of production for many months, driving farmers into dire poverty and eventually disrupting supplies. Cocoa that sold for $15,000 per ton in 1972, has steadily declined as competing buyers drove price down to an average $2,400 per ton. Producers receive only 6% of global sales. The cycle is familiar to coffee growers who receive an estimated 10% of global sales and are currently experiencing decade-low prices.

In a media release, COCOSHE wrote that “The world needs to wake up and acknowledge the reality of the massive wealth inequality which is entrenched within the multi-billion-dollar international cocoa industry. We the cocoa farmers, who form the foundation of the industry, also earn the least share of the industry wealth.”

Coca farmers are proceeding with caution, seeking mechanisms to curb imbalances that often result occur as rival suppliers circumvent minimums.

COCOSHE observed that attempts to regulate market forces often fail, at times leading to worse conditions in the long run. “There is a long history of failed intervention in commodity markets, including cocoa, where price legislation resulted in excess supply/production, lowered demand, and an upsurge in stocks,” it stated.

Cargill is optimistic the price floor will hold: “Our vision is for a thriving cocoa sector for the benefit of future generations: a system that will enable cocoa farmers and communities to flourish, while ensuring long-term commercial success in line with our sustainability initiatives.”