Cote D’Ivoire raises payment for cocoa farmers by 50%

Cote D’Ivoire, one of the world's largest cocoa producers, has announced a 50% increase in payment for cocoa farmers, with an aim to address the global cocoa shortage. This decision comes as a response to the unprecedented rise in international cocoa prices, which currently stand at around $10,000 per tonne, nearly four times higher than they were just two to three years ago. The increase in prices was deemed necessary due to a significant drop in cocoa production, not only in Ghana but also in Cote D’Ivoire, the leading producer. The new farm gate price for mid-crop beans in Cote D’Ivoire stands at 1,500 CFA Francs, representing a quarter of the international price. While the hike in prices is a welcome development for farmers, there are concerns about whether they are reaping the full benefits given the current global market conditions. According to Tedd George, Chief Narrative Officer at Kleos Advisory, the spike in cocoa prices was long overdue and is a direct result of the supply shortage in the market. The unprecedented prices have necessitated adjustments to the initial prices set at the beginning of the season in October last year. As a further measure to prevent exporters from defaulting on contracts for the main cocoa crop, exports between exporters and the Coffee and Cocoa Council have been postponed. Although this move is expected to improve liquidity in the short term, it could potentially impact local processors who heavily rely on the mid-crop beans for their operations. The situation in Ghana mirrors that of Cote D’Ivoire, with talks underway to increase cocoa prices by 50% for farmers. However, the country faces challenges with smuggling due to the significant price disparity between Cote D’Ivoire and Ghana. Ghana's Cocoa Board reported a loss of about 150,000 tons of cocoa to smuggling in the previous season, and the trend is expected to continue as global prices offer a lucrative opportunity for smugglers. The issue of smuggling presents a significant challenge for Ghana, exacerbated by its own financial crisis. Moreover, the effects of climate change, including the spread of diseases and the destruction of cocoa trees due to adverse weather conditions, further compound the challenges faced by cocoa-producing countries. Looking ahead, Tedd George suggests that while cocoa prices are likely to remain high in the short term, sustaining the current price levels of $10,000 per tonne poses uncertainties. The market is expected to respond to the high prices by reducing cocoa consumption, which may ultimately lead to a correction in prices. However, the long-term outlook remains uncertain, with the impact of climate change potentially influencing the rebound of the cocoa sector in the future. While historical trends suggest that high prices spur investment and lead to increased production, the unpredictable nature of climate change introduces an element of uncertainty regarding the sector's future price trajectory.