Cocoa crop failure threatens next season

This season's surprise cocoa crop failure in Ghana, the world's number two producer, has left traders and analysts struggling to piece together what went wrong as they prepare for what many fear may be another weak crop next season.

Having initially forecast production of around 1 million tonnes for the 2014/15 season, Ghana's cocoa regulator Cocobod has slashed that to 750,000 tonnes.

Most traders consider the revised forecast overly optimistic. The International Cocoa Organization (ICCO) now predicts Ghana will have produced 696,000 tonnes by the season's end in September, down over 22 percent from last year.

"The drop in Ghana's cocoa production confounded the industry," said Victoria Crandall, a soft commodities analyst with Ecobank. "No one saw this coming."

Cocobod officials have blamed short-term factors like poor weather and disease, suggesting output would quickly rebound.

But industry players contacted by Reuters said such issues would normally be spotted during the regular visits they make to growing areas to monitor crop development.

After conducting their own research, they point to a combination of factors. Some, such as problems with distributing pesticides, could likely be resolved next season. Other, more worrying structural issues risk plaguing the sector for years.

"After a lot of work, we now believe that there are many factors that helped create the perfect storm for Ghana," a New York-based trader said.

After years of strong output, the plantations were believed by some to be suffering from "tree fatigue" heading into this season. West Africa was also hit by an unusually intense Harmattan wind during the second half of its main crop.

A reform of Cocobod's input distribution policy, meanwhile, disrupted the application of chemicals including anti-fungal treatments, leaving farmers unable to cope with a serious outbreak of black pod disease.

Cocobod has promised to revive its much-lauded inputs programme, which could help resolve some of the issues occurring this season. However, the poor harvest and a serious economic and budgetary crisis could make that difficult.

"Low outturn will squeeze Cocobod's revenues, impeding its ability to buy inputs for next season and therefore impacting next season's outturn," Crandall said.

Other production issues now surfacing, including falling yields of tree stocks planted in the late 1990s and early 2000s, will be harder to resolve.

"We think that Ghana production will stabilise next year, rather than keep on dropping," said Damien Thouvenel, a trader with France's Sucres & Denrées. "But there is a real probability that production could keep on declining more structurally."

During a decade-long political crisis in neighbouring Ivory Coast, the world's top grower, Ghana's output was padded with smuggled Ivorian cocoa, as much as 200,000 tonnes of it during the 2010/11 harvest alone.

A successful sector reform in Ivory Coast has raised farmer prices since 2012, keeping Ivorian beans at home.

Handicapped by its struggling cedi currency, Ghana has failed to keep up, resulting in the smuggling of up to 100,000 tonnes of Ghanaian cocoa into Ivory Coast last season.

This ate into the usual end of season carry-over of beans, contributing to Ghana's sluggish early purchases, traders said.

High inflation levels and a drop in farmer prices in dollar terms have further fuelled already rampant artisanal gold mining, a trader and an analyst said, destroying plantations and sapping labour from the cocoa sector.

"We see no chance that production will regain the 900,000-tonne level (next season)," the New York-based trader said. "We have mixed opinions ... as to whether the 15/16 crop will even rebound from the expected outturn of this year."