The price for farmers in Côte D’Ivoire will drop from CFA 1,100 per kg ($1.81) for 2016-17 season possibly to around CFA 720 per kg ($1.19) if London prices remain low.
The change could take effect from April 1, say supply chain actors.
Government body CCC said in a release on Tuesday it would continue to fix farm gate prices at 60% of the futures price for cocoa in London.
“In October, the price in London was CFA 1,700 per kg ($2.80) but today it is at CFA 1,200 ($1.98). This situation will mean that the producer price of the intermediate campaign will also decrease,” said CCC [French translation].
Cocoa in Côte d’Ivoire
- World’s biggest cocoa producer, accounting for 42% of world cocoa production in 2014/15.
- Ivorian cocoa production has grown from 565,000 metric tons (MT) in 1984 to 1.5m MT annually today.
- Cocoa makes up 20% of the country’s GDP.
[Source: Barry Callebaut/AFD study]
Poverty in cocoa
It comes as many cocoa farmers continue to live below the poverty line.
A recent study funded by Barry Calllebaut found farmers typically earn less than $1 a day – below the World Bank’s threshold of extreme poverty for the country ($2.40).
The average farm size for the 95% of cocoa grown by smallholders is between one to three hectares with average yields of below 500 kg per hectare, according to the International Cocoa Organization (ICCO).
An average Ivorian farmer will have $593 to $1,778 of annual income from cocoa if they receive the farm gate price proposed for the mid-crop (CFA 720 per kg).
This represents 1/29th of the average annual income in the US ($51,939), the main chocolate consuming market by value sales.
‘Happy moments and difficult moments’
The CCC said to farmers in its release this week: “The government will always grant you at least 60% of the price fixed in London.”
“…It is as in our everyday life, there are ups and downs or there are happy moments and difficult moments. This situation is therefore temporary. In order to better resist, efforts must be redoubled to make good quality,” it said.
World market price ‘disastrous’ for farmers
Antonie Fountain of the VOICE Network told ConfectioneryNews a new farm gate price of around CFA 720 ($1.19) might enter force for the mid-crop, possibly from April 1.
“What we are hoping is that this current crisis will allow the sector to start to realize that this current world market price based system is disastrous for farmers.
“As Laurent Pipitone [ICCO economics director] said in the Slow Melt podcast last week; it can't be sustainable if the farmers are so desperately poor.”
Fountain suggested the chocolate brand owners could see improved profit margins because of the price change.
He asked: “How are they going to ensure that the farmers are not driven further into poverty whilst they are making a higher profit?"
Cargill: Cocoa prices justify farm gate adjustment
Cadbury and Milka owner Mondelēz International declined to comment.
Lionel Soulard, managing director, West Africa, for Cargill Cocoa & Chocolate told us Cargill, as a cocoa processor, does not profit from higher or lower farm gate prices.
“Both beans and products are derived from the futures markets, so a lower farm gate price derived from cocoa bean futures automatically translates to lower product prices for Cargill. This applies to the whole industry,” he said.
Soulhard said Ivorian farmers had received the highest farm gate price in five years for the current main crop.
He said the main crop had been abundant leading to a “large oversupply of beans” and consequently a fall in the London price.
“The decline of cocoa prices over the last couple of months justifies a lower farm gate price for the smaller mid-crop, also to make sure the stabilized system itself remains financially stable,” he said.
“We recognize that this price will have a knock-on effect for farmers in the short-term and through the Cargill Cocoa Promise, we have taken steps to help make farmers more resilient,” through training and inputs, he continued.
The farm gate price was at CFA 725 per kg ($1.19) in the 2012/13 cocoa year and at CFA 850 per kg ($1.40) in 2014/15.
Before CCC reformed the sector in 2012, the farm gate price was set at the start of the cocoa year at 45% of the London futures market price.
Barry Callebaut told us it never comments on the cocoa price.
The World Cocoa Foundation has been contacted, but has yet to comment.
Emergency meeting called
The World Cocoa Farmers Organization (WCFO) – whose members are smallholder farmers and organized groups of cocoa farmers - says its members across the globe have been hit by the current low cocoa price.
It plans to hold an emerging meeting with the FarmGate Foundation from April 5-6, 2017 in Accra, Ghana, to discuss the price challenge and other issues affecting members.
A Fairtrade spokesperson said it applauded CCC efforts to stabilize prices and appreciates that the regulator is being transparent to farmers.
Fairtrade said it has fixed minimum price ($2,000 per MT) a buyer must pay to certified farmers’ organizations even when market prices fall below its threshold.
It will review the Fairtrade minimum price and premium this year.
“We do hope that our model can further evolve to better support producers in their income resilience strategies in complement to the government price stabilization efforts,” a Fairtrade spokesperson said.