Cocoa Cartels vs. Investors: The Bittersweet Battle
By CultureBanx Team
Ivory Coast and Ghana set a minimum cocoa price of $2.6k per ton
Africa only gets about 5% of the $100B annual chocolate market value
Earlier this month, Ivory Coast and Ghana which grow about 60% of the world’s cocoa agreed to set a minimum price of $2,600 per ton. These countries which comprise the cocoa-minted cartel want to regulate global supply to grab more of the profit. Will this new cocoa cartel force chocolate prices higher, or will investors be able to keep things business as usual?
Why This Matters: In theory, these two countries could have more of an influence on the cocoa market than Saudi Arabia does on the oil industry. After all, OPEC only controls about 40% of the world’s oil. Herein lies the issue, most of the value gained from processes such as grinding and marketing is added elsewhere, with investors wanting consistent cocoa.
The reason these countries want more control of pricing is for the same reason cautious investors tend to steer clear, and that’s due to high volatility. In 2017, Ivory Coast halted the distribution of higher-yielding seed varieties, since there has been a major turnaround in 2018 causing prices to surge up about 25%.
Africa only gets about 5% of the $100 billion annual chocolate market value, according to the African Development Bank. Compare this with the 20% VAT earned by the UK government from the sale of every bar of chocolate, it’s clear to see why the cocoa producing countries want to extract more value. It’s especially alarming when you consider most cocoa families live on less than $2 per day.
A major hurdle for the two countries to overcome is how they operate as a united cartel front. Ivory Coast and Ghana have vastly different marketing systems for their cocoa, which means this union will require that one or the other change. Also, the governments compete against each other to sell their crops before the season starts, this makes sharing of crucial market information tricky.
What’s Next: For right now, moves by these African countries are unlikely to have a major impact on chocolate prices in the near term. However, for African growers at the bottom of the chocolate value chain, the move seems sensible and could have an impact in coming years.
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