Glut in cocoa market pushes down price and threatens farmers’ living income guarantee
London cocoa futures are forecast to end the year 10% down from current levels and respondents (11 traders and analysts) now expect a 35,000 tonne surplus, having forecast a 70,000 tonne deficit in January, Reuters reported.
The glut caused by the market and supply prospects has sent cocoa prices to a 15-month low of around $2,150 a tonne. Lower cocoa prices are disastrous for farmers and their families trying to make a living income.
The big chocolate manufacturers buy cocoa in the physical market where they agree to pay a premium for top quality. In the forthcoming 2020-21 cocoa season, which begins on October 1, chocolate makers have also agreed to pay an additional Living Income Differential (LID) of $400 a tonne for supplies from top producers Cote d’Ivoire and Ghana as part of a joint initiative to combat farmer poverty.
A worry now for farmers in the two largest cocoa producing countries is that the LID may not be guaranteed, according to local reports.
The LID amount had been reached on the basis that the international cocoa prices would stay in the average ranges, but could now remain lower until the end of 2021, some analysts predict.
Dr Kristy Leissle, who writes extensively on the cocoa industry in Ghana, told ConfectioneryNews: “LID was a bold action by the two countries and before Covid-19 there was hope and optimism that there would be a genuine impact on their income once the LID was implemented. It amounts to almost a 20% increase on minimum price for Ghana – 30% in Ivory Coast - and then COVID happened and everything has been thrown up into the air.”
Cocoa prices are normally hit by changes in the supply chain - but the coronavirus has shifted attention to demand with enforced shutdowns of chocolate retail outlets in areas such as airports, hotels, restaurants and high-street shops disrupting sales.
As a result, global “grindings” — the amount of cocoa processed by the industry — fell by 8.2 % in the second quarter, according to data obtained by Reuters from industry associations –the largest year-on-year decline since 2014.
According to local sources, producers are playing a waiting game. Ghana and Cote d’Ivoire normally sell their upcoming crop ahead of the harvest starting in October, but at present are holding out for better prices.