Ghana and Côte d'Ivoire issued an ultimatum to cocoa buyers on June 12: they will suspend sales of the 2020-2021 harvest if it is not paid at least $2,600 per tonne. What leeway do these two countries have to impose their will?

The recent alliance of the two cocoa giants, more than 60% of world production, is a major asset. Ghana and Côte d'Ivoire have long acted as competitors. As soon as they could, they encouraged smuggling on both sides of the border by using the price differences for the producer.

The trauma of 2016 brought the two African champions closer

They started collaborating after prices plunged in 2016. An earthquake that shook the entire cocoa economy. The regulatory bodies, Cocobod in Ghana and Cocoa Coffee Council (CCC) in Côte d'Ivoire, are exhausted. The latter had to pay off the debt of small Ivorian exporters who had bet on the rise and who were unable to respect their delivery contracts.

Since then, the two brothers who are enemies of cocoa are finally collaborating. They signed the Abidjan Declaration on March 26, 2018 in which they committed to harmonizing their cocoa marketing policies. Here we are.

Favorable market: sluggish global production and strong demand

The market context is also favorable to obtaining the floor price requested by Côte d'Ivoire and Ghana. World prices currently exceed $2,500 per tonne in New York, the market that has been the benchmark for Ivorian cocoa for some time, ahead of London. These prices reflect the current strong demand for cocoa on all continents, but also fears about the upcoming harvests, after the past glut. In Ghana, the cocoa tree disease, swollen shoot, is again very virulent. In the two countries, we jointly launched a program to uproot diseased trees to limit the contagion, which is fatal for cocoa trees. In Côte d'Ivoire, drought threatens to affect the next harvest.

On the production side, competing producing countries are in bad shape: in Cameroon, cocoa production is suffering from the conflict in the north of the country, Nigeria is far from being able to meet its harvest objectives and Ecuador is seeing its shipments contaminated with a poisonous herb, which temporarily puts it off the world market.

Goodwill displayed by the chocolate industry

The Ivorian marketing system has also changed over the past year. Exit the daily electronic auction system. Côte d'Ivoire sells when and to whom it wants.

Hence the goodwill displayed by the chocolate industry, from traders to Nestlé, in the face of the demands of the two African bean champions. Questioned by RFI, Patrick Poirrier the CEO of Cémoi believes "that we must support producers and that the world price of cocoa is too low". The French chocolatier has, it is true, invested, like for example Cargill, in grinding capacities in Abidjan, it needs Ivorian beans.

But the leader of Cémoi also confides his hope that world prices will reach the requested level, namely 2600 dollars per ton deliverable in October 2020. Because what would happen if prices sank again? It would be necessary to compensate, to unlock the positions of the major sellers and buyers of beans on the futures market, with cheaper cocoa from competing countries, which would be encouraged to produce more. In the long term, this could undermine the dominant position of Ghana and Côte d'Ivoire. The bet is therefore risky.

+40% for small growers in 2020?

It is not insignificant that the two bean giants want to derive more income from cocoa in a pre-election year. Despite its low weight in GDP (11%), the cocoa sector has always been politically strategic, especially since it employs a large number of potential voters: small planters. However, the stated objective is to pay them, according to information from the trade, 70% of the 2,600 dollars requested, or 1,055 CFA francs per kilo, against 750 currently. A very low guaranteed minimum price because it reflects the prices of two years ago and it is not even always respected. What the Ivorian planters complain about.

How to achieve this 40% increase in the farm gate price, after paying intermediaries, taxes, transport...? This will be the challenge of the negotiations that are underway within the cocoa-chocolate sector in Ghana and Côte d'Ivoire. The next meeting is scheduled for July 3 in Abidjan.