African cartel moves on world cocoa market
Chocoholics, stock up now. An African “chocolate cartel” is set to send the price of chocolate soaring — and consumers will be paying the bill. This is how it will work.
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Chocolate lovers, start stockpiling now.
The world’s two biggest cocoa producers, the West African nations of Ivory Coast and Ghana, have banded together to form a cartel with the aim of securing higher prices for their beans.
Their initiative has already been dubbed “Copec” — a reference to the Organisation of the Petroleum Exporting Countries, which has played a major role in driving oil prices for the past five decades.
Ivory Coast and Ghana together account for more than 60 per cent of the world’s cocoa, the key ingredient for chocolate. While the global chocolate industry racks up sales of more than $US100 billion ($144 billion) a year, Africa earns about $US5 billion from the sale of its key raw material.
Efforts by Ivory Coast and Ghana to lift the price of cocoa could deliver the biggest shake-up to the global chocolate market in decades and are set to filter through to the prices of chocolate bars, cakes, biscuits and ice cream.
Their move comes as global sales of chocolate are forecast to surge to $US140 billion a year over the next five years.
“You’re talking about two-thirds of the world’s cocoa,” Marex Spectron commodity trader Jonathan Parkman told T he Wall Street Journal.
“Who’s paying the bill for this? Ultimately, it’ll be the consumers.”
Any increase in cocoa prices will mark a double blow for Australian chocolate makers who already pay more as a result of the slide in the Aussie dollar in recent years.
Efforts by the Ivory Coast and Ghana to increase the price of cocoa began in the middle of last year when they proposed setting a minimum price of $US2600 a tonne for their production.
The price of cocoa has fluctuated between $US1900 and $US3400 over the past five years.
Amid a pushback by major confectionary makers, the African nations instead settled for a levy — dubbed a living-income differential — of $US400 a tonne to be applied to the price of cocoa futures set in London.
Futures are contracts to buy or sell a commodity at a specific date in the future for a set price.
It gives producers and buyers greater certainty over the outlook for their businesses.
The cocoa levy officially comes into effect in October, although some futures contracts have already been written with it included.
It is being supported by major confectionery producers such as Mars and Cadbury-owner Mondelez International — which have significant manufacturing operations in Victoria and Tasmania — and Hershey.
The African governments say they will use the levy to compensate cocoa farmers when the price drops, although some traders have warned buyers may seek out new supply from other producers such as Indonesia, Nigeria, Ecuador and Brazil.
Despite chocolate being a $US100 billion industry, the World Bank estimates 80 per cent of cocoa producers live on less than $US3 a day.
It is not the first time cocoa producers have banded together in an attempt to raise prices.
Major producers tried to control the price in the 1970s and 1980s by withholding supply from the market but the arrangement eventually broke down, flooding the market with cocoa and prompting a 40 per cent drop in prices.
Originally published as African cartel moves on world cocoa market
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