Will Cote D’Ivoire’s lower cocoa premiums?

In a recent interview on CNBC Africa, the Cocoa and Coffee Council of Cote D’Ivoire expressed concerns about slow sales of export contracts for the upcoming 2024-2025 season at current market prices. Despite pressure from multinational companies to lower cocoa premiums, the council remains steadfast in its commitment to not give in to these demands. Tedd George, Chief Narrative Officer at Kleos Advisory, shed light on the developments in the cocoa sector during the interview. The disagreement between the council and multinationals revolves around the origin differential, with the latter arguing that high cocoa prices present excessive risks if the market takes a downturn. The council’s decision to maintain the origin differential was crucial in improving the income of cocoa farmers, but multinationals are pushing for a reduction. This impasse reflects the tight market conditions, as cocoa prices have reached historical highs, exceeding £3,300 per tonne in London. While multinationals fear the potential risks of high prices, George explained that the global demand for cocoa remains strong, with prices staying exceptionally high. The outlook for the current cocoa season in West Africa, however, is concerning, particularly in Cote d'Ivoire, where production is expected to be significantly lower. The CCC anticipates a crop reduction of up to 25%, placing further strain on prices and trade negotiations. In response to multinationals planning to delay purchasing 2024-2025 contracts until 2024, George emphasized that the ability of countries like Cote d'Ivoire and Ghana to withstand this delay depends on their financial implications. While waiting might yield better prices if demand outstrips supply, the financial impact on cocoa-producing countries could be significant if expected revenues are delayed. Apart from adverse weather conditions affecting production, analysts suggest that broader policy reforms are needed in the cocoa industry to address the cost of production ingrained in the value chain. By enhancing supportive infrastructure and addressing gaps in financing and logistics, farmers could mitigate losses and boost production, even in challenging weather conditions. George pointed out that supportive infrastructure and financial services are critical for farmers to access resources and navigate the cocoa supply chain effectively. While the CCC in Cote D’Ivoire is aware of these challenges, the sector remains fragmented, with multiple middlemen extracting profits that should benefit others in the supply chain. Building a more cohesive supply chain with better visibility and financing mechanisms is crucial to sustainable cocoa production and trade. Despite the uncertainties surrounding cocoa prices and trade negotiations, the cocoa sector continues to face mounting pressures and risks. The stance of Cote D’Ivoire against lowering cocoa premiums highlights the country's commitment to supporting its farmers and maintaining a sustainable cocoa industry amidst global market challenges.