Price of cocoa soars as world stocks dwindle

THE price of cocoa is soaring on world markets, sending commodity traders scrambling to cover their positions and providing relief to hard-pressed West African farmers.

The raw ingredient for chocolate has almost doubled in price over the past year and gained some 20 per cent since the beginning of this year amid growing fears of a production deficit.

In London, the futures price now exceeds ?1,200 a tonne, up from ?800 in October, and cocoa traders see no immediate prospect of the price receding. “There are fundamental reasons for the price rise. Cocoa production was in deficit last year and is likely to be in deficit in this year’s harvest,” said Paolo Torres, a cocoa broker at Sucden, the commodities trading firm. “Stocks fell by 200,000 tonnes last year.”

Cocoa is a commodity originating in South America, but also grown as an important cash crop in Africa, where it is sold to processors for conversion into powder and cocoa butter, and ultimately purchased by food companies, such as Nestl?, Jacob Suchard, Cadbury Schweppes and Mars. While the buyers are huge multinationals, the cocoa farmers are often family farmers working on smallholdings.

The world consumes three million tonnes of cocoa every year and the key to the market is the proportion of annual consumption held in stock. During periods of weakness stocks can rise to 70 per cent of the market but recent erosion of stockpiles has pushed the cover down to 1.2 million tonnes, some 40 per cent.

The International Cocoa Organisation (ICCO) reckons that world stocks could fall by 400,000 tonnes after last year’s weak harvest and that the 2001-02 harvest could be as weak. “Cocoa stocks could fall to one million tonnes for the first time in 12 years,” a spokesman for the ICCO said.

Soaring cocoa prices are unlikely to lead to more expensive Easter eggs, say the UK’s chocolate barons. Cadbury Schweppes reveals that the cocoa content of a typical bar of milk chocolate accounts for between 8 and 10 per cent of the retail price.

Confectionery manufacturers are more likely to absorb any price increases and seek cost reductions elsewhere. According to the ICCO, demand for chocolate is little affected by recession but does respond to price change.

The impact of price volatility on West African cocoa producers is likely to be more dramatic. The Ivory Coast is the world’s largest cocoa producer, which in a good year can account for almost half of world demand. The fall in production is in part a consequence of three years of weak prices, say cocoa experts. “When prices are low people use less fertiliser, less pesticide and the plantations tend to be neglected,” Mr Torres explained.

Crops in West Africa have suffered from black pod, a blight that can also be attributed to lack of resources. The Day Chocolate Company, the Fairtrade company which markets the Divine and Dubble brands, said the sudden price increase showed the precarious nature of the market. A company spokeswoman said: “Only 18 months ago the world market price was at a 30-year low. How can farmers plan for the future when their incomes can vary so dramatically? Market forces are a political issue in Ghana, where the Government is under pressure from the World Bank and the IMF to liberalise its cocoa industry, which currently fixes the price for farmers and sells cocoa centrally on the futures market. The ICCO has criticised proposals to abolish government controls, arguing that farmers need a reliable central agency to represent them.