For many in the world of commodities Côte d’Ivoire is synonymous with cocoa bean production. In the season 2015-2016 the West African country production reached a remarkable 1.581 million tons. Impressive as a such a figure is, it belies the fact that in reality the industry is both deeply troubled and highly politicised. Poisonous local politics coupled with the vagaries of the international market make for a challenging mix, one that warrants greater analysis than it normally receives.
At a local level the challenge for the small grower are essentially threefold:
- The difficulty of acquiring vehicles to transport their crops from the plantation to the factory or trade centre.
- Being able to access fertilizers and phytosanitary products to improve their crops.
- Difficulty to access banking services including loans and credit. One consequence of this situation is that small farmers (the average Ivorian cocoa farmer farms between 1-3 hectares) often have to sign ‘debt agreements’ with cocoa buyers during tough times in exchange for their future deliveries.
Naturally, the world price of cocoa beans has a direct bearing on profitability, as well as national revenue and thus Côte d’Ivoire needs to be mindful of what is happening internationally. In recent years cocoa prices have been rather volatile and these oscillations have mirrored the will of the Ivorian authorities in their quest to maintain a decent price for local farmers, as well as fluctuations on international markets. During the 2015-16 season the minimum farm price for the smaller of the two crops was approximately 1000 West African CFA per kilo (1000 West African CFA = approximately $1.73), and this despite the concerns raised by the cocoa buyers (including intermediaries, exporters and overseas buyers) and the cocoa funders (banks). It is important to appreciate that the commercialization of Ivorian cocoa beans is based on futures contracts, which means that the terms of the delivery contracts are fixed between local exporters and their overseas clients before the main crop is harvested. The situation is thus, when the price rises above the contractual terms, the seller gains, but when the price falls below the contractual terms the seller loses. To mitigate such risks, the Ivorian Government established the Cocoa and Coffee Council. The said Council endeavours to control activity, key stakeholder, quality requirements, issues the annual quotas for exporters and collects all taxes related to commercial operations. These funds permit the Council to compensate the exporters or farmers when they suffer losses resulting from price fluctuations on international market. A levy is charged that raises funds for the Fond de Reserve, this in theory is meant to help the sector weather challenging economic times. In practice this Reserve Fund is somewhat nebulous in nature, and there are legitimate concerns that the funds are sometimes siphoned off and used for diverse non-cocoa related purposes.
During the main crop of the 2016-2017 season the price of cocoa beans rose from 1000 to 1100 per kilo, and this in spite of the fact that the international cocoa market was depressed. Increasing the local price to farmers was motivated by political objectives. With various constitutional changes and reforms in the offing President Ouattara was anxious to see that cocoa farmers were well disposed towards the Government. With the disparity between the local price and international rates it was only a matter of time before a crisis emerged. International buyers voted with their feet and decided to go elsewhere. As a direct result Ivorian beans were left in the villages. Hundred of trucks lay idle at key ports and it is believed that several dozen small farmers committed suicide as they faced certain ruin. Exporters were unable to execute their futures contracts and suffered major financial penalties issued by the Council. As for the Fond de Reserve, it proved totally inadequate when it came to making up for the short fall, there have been persistent rumours circulating that the cupboard was bare.
During the small crop of 2016, the Government weakened by political rivalry, civil servant strikes and military mutinies felt more exposed to the actions of international speculators than ever before. It finally reduced the farm price from 1100 to 700 West African CFA per kilo. Devastating news for farmers, but an action aimed at reawakening international interest in Ivorian cocoa beans. A further measure aimed both at appeasing critics as well as restoring confidence in the market saw Mrs Toure Massandje Litse, a senior figure in the Coffee and Cocoa Council being replaced. This same price of 700 West African CFA per kilo remained unchanged for the current main crop of 2017-2018 causing anger and discouragement among farmers. The Ivorian Government has even resorted to deploying troops along the border with Ghana in order to prevent Ivorian producers selling their beans to Ghana where they receive at least 900 West African CFA per kilo (approximately $1.56) when the Ivorian fixed price is only 700 West African CFA per kilo (approximately $1.21).
The cocoa and coffee trade in Côte d’Ivoire is extremely political, it is a sensitive environment where free speech is carefully controlled. The financial and geopolitical stakes are high and the local growers appear insignificant when viewed against large multinationals and the government. Tragically certain vested interests seem quite content to main the status quo, which appears to include keeping the poor farmers in ignorance. Seeking to discover possible corrupt practices whether these be by political elites or the cocoa multinationals is a dangerous business. The kidnap, and probable murder of the French journalist Guy-André Kieffer in 2004 serves as a grim warning to those who ask searching questions in Côte d’Ivoire.
So how might the situation be improved for cocoa farmers in Côte d’Ivoire?
- Free pricing system Presently prices are set up by government through the Coffee and Cocoa Council. It would be advisable to initiate a free trade system where prices will depend on private contracts sealed between the different stakeholders (farmers, intermediaries, exporters) and on the tendencies of international market. This will allow actors in the supply chain to gain substantial profits when possible and operate their activity freely. The state will only oversee the trade without imposing prices. Naturally, there will need to be some adjustment, but such an approach might help depoliticise the business.
- Free access of foreign partners to Ivorian market Côte d’Ivoire observes anti-competitive practices by the authorities favouring a circle of exporting companies to the detriment of the other operators. These companies are offered bigger exporting quotas and some fiscal advantages. A more open market approach will strengthen the competition and offer better opportunities to farmers and intermediaries.
- A better focus on farmers and protection of the environment Cocoa buyers do not really focus on the welfare of farmers. Instead, they focus on the beans. For all the talk of ethical standards there is scant evidence of real progress. Some of the more enlightened multinationals try to add some social responsibility to their activities, but this is largely in its infancy. A whole raft of issues affect the sector, including concerns over the use of child and forced labour. Everybody wants quality cocoa beans, but who really cares about the farmers? On current evidence, no one. When anyone travels to the countryside, it is always the same: poverty, health and social issues. Equally environmental issues deserve particular attention, not least because the cocoa industry has caused extensive deforestation in the cocoa growing regions and accelerated climatic change which is adversely affecting the crop.
According to the OEC in 2015 Côte d’Ivoire generated $3.75 billion from the export of cocoa beans and a further $881 million from the sale of cocoa paste. With the cocoa crop making up over 40% of the country’s export income it is imperative that far greater care is taken of the sector as a whole.
Mark T. Jones