Côte d’Ivoire-Ghana: Five questions to better understand the battle over cocoa
Ensuring the beans can be fully traced by 2024, announcing sales at encouraging prices… Since 2018, Abidjan and Accra have been engaging in an arm wrestling match with the brown gold industry to defend the interests of the planters.
The two West African countries of Ghana and Côte d’Ivoire have formed an alliance in order to counter the international players in the cocoa sector. Why was this partnership necessary? Is it really effective? How is the Abidjan-Accra axis positioned internationally? How does it benefit the farmers? We take stock of the issues and challenges in this strategic sector.
1. Why have Côte d’Ivoire and Ghana formed an alliance?
The main objective of the alliance nicknamed ‘Cocoa Opec’, which Côte d’Ivoire and Ghana formed in 2018, is to defend the interests of the cocoa farmers by increasing their pay. These two West African countries, the world’s largest and second-largest bean producers (with 2.2 million and 1 million tonnes respectively produced in the 2020-2021 season), account for almost 70% of the international cocoa supply. With this position in mind, they want to rectify a historical pitfall that makes farmers the weakest link in the cocoa chain, even though they are indispensable.
READ MORE Cameroon, Nigeria request to join Ivory-Ghana Cocoa Initiative
“It is estimated that 40% of the sector’s revenue goes to the large retailers and the same amount to the chocolate makers, while traders and intermediaries earn around 10%. The producing countries only receive 5% to 6% of the revenue from a market that represents $130bn per year,” says Alex Assanvo, the executive secretary of the Côte d’Ivoire Ghana Initiative, a platform that coordinates the actions of the two states and their respective regulators, the Ivorian Coffee-Cocoa Council (CCC) and the Ghanaian Cocoa Board (Cocobod).
To remedy this problem, Abidjan and Accra made the major decision in July 2019 to introduce a “decent income differential (DRD)”. This premium of $400 per tonne is added to the purchase price of beans and is calculated by adding the price fixed on the world futures markets and a country premium linked to quality. The measure, which buyers warmly welcomed, nevertheless came into force from the 2020-2021 season with the aim of maintaining a floor price for cocoa at $2,600 per tonne.
2. What are the results of this partnership?
As the 2022-2023 marketing year for beans opened on 1 October, it is time to take stock, which is positive in two main respects. On the one hand, although it was not a foregone conclusion, the alliance between Abidjan and Accra is holding firm and has even grown stronger over time. Since May, the two countries have published their respective quality premiums every month, a joint transparency effort that increases the pressure on buyers. Likewise, despite the DRD’s reluctance, it has become a de facto instrument for influencing the world market.
Complete the form and download, for free, the highlights from The Africa Report’s Exclusive Ranking of Africa’s top 200 banks from last year. Get your free PDF by completing the following form
READ MORE Cameroon, Nigeria request to join Ivory-Ghana Cocoa Initiative
On the other hand, the Ivorian-Ghanaian action reinforces all the sustainability initiatives launched in recent years – whether by certification bodies, cooperatives, bean buyers and multinationals or the European Union – as MEPs adopted legislation against imported deforestation in mid-September (banning the import of products that have contributed to the destruction of ecosystems, such as forests in cocoa’s case). As a result, Côte d’Ivoire’s Yves Brahima Koné, the head of the CCC, announced “the implementation of a traceability system for all cocoa, from the field to the exporters’ factory” for the 2023-2024 season. At the beginning of October, the Ivorian government set cocoa’s purchase price for the 2022-2023 season at 900 CFA francs per kilo (1.37 euros), up 9% from the previous season (Ghana followed suit by setting a price up 21% year-on-year at 12.8 cedis per kilo, or about 806 CFA francs), while announcing that it had distributed 350,000 farmers’ cards, with another 250,000 to follow, in an effort to make the sector more transparent.
“Although everyone has embarked on the process, there is still a lot of tension between the various players, particularly over which entity should control it,” says someone familiar with the sector. The certification bodies, which have long been at the forefront of the issue, have seen their influence diminish, as they are sometimes accused of having too much power and other times criticised for failing to fully trace the origins. The chocolate makers, who have agreed to pay more for the beans, intend in exchange to lay down the rules imposed on the brown gold. These two desires conflict with the producing countries’ hope of regaining control of their resources in order to better value the work of their growers. This explains why, while the industry has made progress when it comes to bean traceability, progress on the remuneration front remains tenuous.
3. Is it possible to obtain good remuneration for the farmers?
All the players say it is. “There are many mechanisms that, in principle, enable cocoa farmers to earn a higher remuneration than the sector average,” say Martijn ten Hoopen and Stéphane Saj, cocoa specialists at the Centre de Coopération Internationale en Recherche Agronomique pour le Développement (CIRAD). A scientific study published in 2015 estimated that sustainable and fair trade cocoa generates 6% more income than conventional cocoa production in Côte d’Ivoire.
In practice, however, progress is only made on a limited quantity of beans and therefore on a small number of producers, the majority of whom do not see a significant increase in their income. In addition to the difficulties associated with implementing the mechanisms, several other factors play a negative role. For example, the downward trend in world cocoa prices since 1950 (despite a price peak in the 1970s), with a tonne currently worth around $2,000 and, since the beginning of this year, the soaring price of inputs and fertilisers, which is synonymous with higher production costs and lower revenue.
“The efforts made do not resolve the basic asymmetry that exists on the market between a small number of buyers in a quasi-oligopoly situation and sellers who have to sell goods that cannot be easily stored,” say researchers Hoopen and Saj. This situation explains why it is so difficult for the Ivorian-Ghanaian tandem to win the battle. “No one wants to buy at the price that both countries want, especially since there is uncertainty about the level of demand for cocoa in the coming months because of fears about energy supplies to industries, including food,” the sector expert tells us.
A recent announcement illustrates the difficulty of the situation. In mid-September, on the sidelines of exchanges organised by the European Cocoa Association (ECA) in Rome, Cargill and the CCC welcomed the sale of a shipment of 25,000 tonnes of cocoa at a price including all premiums, including a non-negative country premium. Basically, ever since the DRD came into force, the country premium has steadily decreased until it has become negative, thus erasing the expected gains for producers. This circumvention of the DRD, which has been deplored by Abidjan and Accra, led the two countries to make the country premium public to counter the buyers’ manoeuvre. In this context, the sale of 25,000 tonnes, a very modest volume for the Ivorian sector, must be read as an attempt to create a knock-on effect on the rest of the buyers – in vain so far.
4. Why does bean traceability matter?
The fight over remuneration is taking place against a backdrop of industry-wide reform to make the sector more sustainable, through investments in bean traceability, combating deforestation, training farmers and eliminating child labour. This movement has been launched worldwide in response to growing consumer demand for fairer and more environmentally friendly chocolate. Chocolate, in turn, is sold at a higher price.
In this context, bean traceability is presented as a means of strengthening the sector’s transparency. It is a matter of assuring chocolate makers and consumers that they are indeed buying a product that meets their requirements, and the EU that its announced €1bn ($968m) contribution is actually being used to modernise and “green” the sector. Being able to trace the bean’s origin not only guarantees its quality but also eliminates grey areas, in particular the numerous intermediaries at the edge of the field, while consolidating the cooperatives and their associated producers.
Physical traceability is expected to ultimately pave the way for financial traceability, says the “Cocoa OPEC”. Once they have been registered and identified, the farmers, whose production is traced, can receive payment for the work they have done directly – notably via mobile money. While Cargill, Barry Callebaut, Olam, Touton, Cémoi, Mars, Hershey, Mondelez and Nestlé emphasise the progress made in terms of traceability and the gains for producers, not all players make the important link between traceability and remuneration. The Ivorian-Ghanaian duo deplores the fact that the European legislation against imported deforestation does not mention DRD, insisting however that the desired sustainability can only work if it is based on three pillars: social, environmental and economic.
5. Is Latin America threatening African efforts?
The challenge for Côte d’Ivoire and Ghana is further complicated by the fact that while these countries are the world’s two largest bean producers, they are not the only ones. As a result, buyers have responded to Côte d’Ivoire and Ghana’s demands by diversifying their sources of supply elsewhere in Africa and Latin America. They are not only turning to Cameroon and Nigeria (the world’s fourth and fifth largest producers according to the International Cocoa Organisation, ICCO), but also to Ecuador (the world’s third-largest producer according to the ICCO), Brazil, Peru, Colombia and Bolivia.
READ MORE Ghana raises cocoa farmgate price by 21% for 2022/23 season
Of course, none of these countries is able to compete with Abidjan and Accra in terms of volume, as Cameroon is aiming for 300,000 tonnes per year by 2022-2023, and Ecuador is in third place worldwide with 375,000 tonnes, well behind Côte d’Ivoire and Ghana. Similarly, the quality of the beans varies from one country to another, with Cameroonian and Nigerian production, for example, failing to match the results from Côte d’Ivoire and Ghana.
That said, competition from other producers, which weakens the balance of power established by the ‘cocoa OPEC’, is a problem for Abidjan and Accra. For this reason, discussions are underway with Cameroon and Nigeria – whose production increased by 17% and 14% respectively between 2016-2017 and 2021-2022 – with a view to their joining the alliance, without any concrete progress being made for the moment.
Across the Atlantic, the two serious competitors are Ecuador and Brazil, with annual production jumping by 29% and 26% between the 2016-2017 and 2021-2022 seasons. In the short term, the negative impact on the ‘cocoa OPEC’ remains limited. It will take time to reach significant levels of production, as Brazil is handicapped by diseases that affect cocoa trees and South American production is primarily intended for the North American market. However, in the medium and long term, while Côte d’Ivoire and Ghana will have to renew their plantations within the next 20 years to maintain their world domination, Latin America has greater potential to increase its agricultural land.