Cocoa prices shoot to new high

...Rise due poor harvests and unease in Ivory Coast

RAPIDLY rising cocoa prices hit a 16-year high of ?1505 a tonne on London International Financial Futures Exchange (LIFFE) yesterday as heavy gunfire ripped through Abidjan, the capital of the Ivory Coast, the world's leading cocoa producer.

However, there was little optimism over coffee, where prices in real terms have hit a 30-year low. LIFFE November coffee futures closed $20 weaker at $613 a tonne.

Rising exports by Vietnam and a record crop in Brazil, the world's biggest coffee producer, have flooded the world market. Dealers said there was scope for coffee prices to decline still further, and a report by Oxfam warned that 25 million coffee farmers around the world face ruin.

Cocoa prices, by contrast, have doubled over the past year in view of a supply shortage caused by poor harvests in West Africa.

Ivory Coast grows 43% of the world's cocoa, but Ghana, Nigeria, and Cameroon are also major producers.

Gunfire erupted before dawn in Abidjan and other major towns in Ivory Coast in what appeared to be an attempted coup. Last night, the government claimed to have restored control.

Until the military briefly seized power in 1999, this former French colony was one of the most stable and prosperous countries in Africa.

A commodities analyst at ABN Amro said yesterday: "We're not quite sure what's going on in Ivory Coast and we're not even sure that the

discontentment there has anything to do with the rising price of cocoa.

"Prices have been rising steadily since last October, causing global consumption to fall between 6% and 9%. Although we're expecting a rebound of about 4% next year, the market moves on prediction. So really what we're seeing here are expectations of a continued deficit in world supply, basically not enough cocoa to go around. There are a lot of bulls in this market," he said.

"Even if there is a coup in the Ivory Coast, there may be an immediate, temporary excessive rise in the price, but in my experience the product always finds its way out because the rebels or new leaders will want cash for their crop."

LIFFE March coffee futures ended the day ?22 higher at ?1493, off the day's high.

While the Ivory Coast is also the world's fourth-largest grower of coffee, its output is small compared with Vietnam and Indonesia, and minuscule compared with the amount exported by Brazil, so experts say the political turmoil there is unlikely to affect coffee prices.

Andrea Thomson, coffee analyst at Belfast-based CommodityExpert.com, said: "Coffee prices have been declining for decades, but have plunged since 1999 when Vietnam launched itself on the coffee market and immediately became the world's second-largest coffee-producing nation.

"There is basically a glut of coffee in the world outstripping global demand and driving the price downward.

"Global demand is currently around 111 million bags a year, but the coffee nations are producing in excess of 120 million bags.

"Add to that rising global coffee stocks and a particular bumper crop in Brazil, the largest coffee-producing nation in the world, and you have a serious glut. And as a result of the declining prices, there are now millions of coffee farmers around the world who can't afford to feed their children. It's a real human crisis."

Oxfam called for international action to destroy surplus coffee stocks and raise producer prices.

It said coffee revenues in Central America fell 44% between 1999 and 2001, and are forecast to drop another 25%. Ethiopia's coffee earnings fell 42% in a year, and Uganda's dropped by 30%.

"The coffee market is failing," Oxfam said.

"It is failing producers on small family farms for whom coffee used to make money. It is failing local exporters and entrepreneurs who are going to the wall in the face of fierce international competition. And it is failing governments that had encouraged coffee production to increase export earnings."

But while the world drowns in surplus coffee, commodity broker ED&F Man estimates there will by a 50,000-tonne shortfall in cocoa supply this year.