Regulators of the cocoa industry in Ghana and Ivory Coast are currently planning to introduce a cocoa production ceiling to firm up global market prices by preventing overproduction
This is to address the concerns of cocoa buyers of possible excess production by cocoa farmers in both countries, inspired by the fixed “living income differential” (LID), but which would ultimately lead to lower prices if supply significantly exceeds demand, according to Reuters.
The plans to introduce a production ceiling comes after the two nations, who produce two-thirds of the world’s cocoa, imposed a fixed “living Income differential (LID)” or premium of US$ 400 a tonne in July on all cocoa sales starting from the 2020/21 season.
“We’ve put in (place a) mechanism which sets production ceilings,” the Chief Executive Officer of Ghana Cocoa Board (COCOBOD), Joseph Kofi Aidoo told industry representatives at the European Cocoa Forum in Lisbon.
However, Mr. Aidoo did not indicate at what level the production ceiling would be set, saying that the respective parliaments in both countries had to approve it first.
As the 2018/19 cocoa year is drawing to a close, there is already the prospect of excess global supply, even though farmers will not start benefitting from the income differential until the 2020/21 crop season.. As at 21 August 2019, cumulative cocoa arrivals at Ivorian ports since the beginning of the season were estimated at 2.135 million tonnes, up by 12 percent from the 1.913 million tonnes recorded during the same period of the previous season. Production in Ghana reached about 850,000 metric tonnes for the 2018/19 crop season.
In the latest release of the Quarterly Bulletin of Cocoa Statistics, the ICCO Secretariat published that world cocoa production for the current season is expected to increase by 4.3 percent to 4.849 million tonnes, as compared with the previous season’s estimate of 4.651 million tonnes.
Regarding demand, a 4.1 percent growth to 4.783 million tonnes, in world grindings, is anticipated for the current season compared to the last crop year.
The Director-General of Ivory Coast’s Conseil Cafe Cacao (CCC), Brahima Yves Kone, said lawmakers in Ivory Coast and Ghana would likely approve the production ceiling. “According to the figures they gave us, we expect them to agree,” he said.
Cocoa prices on ICE Futures Europe hit a one-year high of 1,939 pounds (US$2,424) in July, in anticipation of the move by Ivory Coast and Ghana to introduce the premium, their latest attempt to combat pervasive farmer poverty.
Speaking on how the two producing nations would implement a production cap in practice, Kone said Ivory Coast had begun mapping and registering the country’s farmers, and should complete the project by 2020.
“We’ll have all the plantations, all the locations (mapped). No one will enter the sector without permission. We need to be very harsh otherwise we’ll have an explosion (of production),” he said.