Jun 17, 2019 - Economy & Business
Investors are dubious of Africa's new cocoa cartel
Dion Rabouin, author of Markets
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Data: Investing.com; Chart: Axios Visuals
Investors aren't buying the idea of a potential Organization of Cocoa Exporting Countries, and cocoa prices sank late last week after rallying to an 11-month high.
Driving the news: Ghana and Ivory Coast reached an agreement not to sell cocoa for less than $2,600 a ton for the harvest that will begin in October 2020. The two African nations account for 60% of the world's cocoa production. That sent cocoa prices to $2,552 Wednesday.
But investors aren't convinced the agreement will hold and Ivory Coast's strong planting season this year has markets convinced the world will be flush with enough cocoa to drag prices lower.
Cocoa prices were well above $3,000 a ton for most of the period from 2014 to 2016, but have fallen since.
What's next? Ivory Coast and Ghana say they are setting the price floors to improve pay in the industry, but to make a real impact, Ivorian President Alassane Ouattara and Ghana's Nana Akufo-Addo should focus on processing cocoa, rather than just growing it, Reuters' Ed Cropley writes for Breaking Views.
"Of the $100 billion spent annually on chocolate, the African Development Bank reckons the continent keeps just $5 billion. As with other commodities like diamonds or crude oil, the labour-intensive work happens elsewhere. According to International Cocoa Organization figures, Ivory Coast ground just 559,000 tonnes of beans last year — less than the Netherlands.
"Building a processing sector requires lots of investment and expertise, but Indonesia shows what is possible. In 2010, 80% of its 500,000 tonnes of cocoa exports were beans, according to an analysis by Fitch Solutions. In 2017, that proportion had fallen to 5% as production of cocoa butter, paste and powder soared. Making a similar switch in West Africa really would be sweet."
Go deeper: The staggering impact of falling coffee prices