Chocolate Supplies Buoyed as Ecuador Cocoa Beats El Nino

Ecuador, already the world’s biggest grower of flavored beans used in fine chocolate, is poised to extend its lead over Brazil as the top cocoa producer in the Americas as exporters forecast a record harvest.

Cocoa output probably will rise about 9 percent to 240,000 metric tons in 2014 on government assistance programs, new plantings and as concern eases that the El Nino weather phenomenon would curb yields, according to Ivan Ontaneda, president of Ecuador’s National Cocoa Exporters Association, known as Anecacao. That’s 14 percent more than the International Cocoa Organization’s 210,000-ton forecast and 20 percent higher than its estimate for Brazil, according to data compiled by Bloomberg, based on information from the group.

The South American nation, where the fatty beans used to make chocolate have been grown since pre-Columbian times, is taking advantage of increased demand for fine chocolate in emerging markets as economic growth boosts salaries and makes luxury items more accessible, Ontaneda said. A new trade agreement reached last month with the European Union, the world’s biggest consumer of fine chocolate, will also help spur investment in and production of Ecuadorean cocoa, he said in an interview at his office in Guayaquil.

“Weather conditions in the fields have been good so far,” Ontaneda, who’s also chief executive officer of cocoa exporter Eco-Kakao SA, said Aug. 25. “There’s not a single cocoa bean that goes unsold.”

Arriba Beans

An outbreak of the witches’ broom fungal disease in Brazil reduced the nation’s crop last year. Repeated outbreaks of the disease since the 1980s displaced Brazil from the position of top producer and have since discouraged planting, while West African countries took the lead. The Ivory Coast is the world’s top producer, followed by Ghana.

Calls to Brazil’s Cocoa Chamber in the Agriculture Ministry went unanswered. Officials at Brazil’s National Agriculture Confederation weren’t immediately available to comment.

While Ecuador’s Arriba varietal is used in fine chocolate, ordinary or bulk beans are used for mass production. Chocolate makers like Nestle SA (NESN), the world’s biggest food company, operate in the Andean nation.

Australia’s Bureau of Meteorology said yesterday it remains on El Nino watch even as the onset of the weather event that brings drought to the Asia-Pacific region and heavier-than-usual rains to South America may be delayed to the end of the year.

“Risks from El Nino have decreased and if it’s going to occur, it will be light to moderate,” Ontaneda said. “If rains start in November or December, it’ll be considered a normal rainy season.”

Credit Lines

Growers are working with the government to double yields to an average 20 quintals per hectare (2.47 acres), Ontaneda said. A quintal in Ecuador equals 45.36 kilograms (100 pounds).

The nation’s Agriculture Ministry is working to develop credit lines for growers and already provides fertilizers and training on how to prune and improve post-harvest fermentation that gives the cocoa its distinctive flavors, Ontaneda said.

The government is also creating incentives for banana growers, the country’s biggest agricultural export, to switch to cocoa because it pay workers more and requires fewer environmentally-damaging chemicals, he said.

Price Surge

Cocoa has jumped 19 percent to $3,216 a ton on the ICE Futures U.S. in New York so far this year. Prices will fall to an average $2,992 a ton in 2015, according to the median forecast of five analysts surveyed by Bloomberg. Cocoa for December delivery was little changed at $3,217 at 9:45 a.m. in New York after touching $3,300, the highest since May 2011.

Prices may rise to as high as $3,400 by the end of the year and won’t fall below $2,800 as growing demand for fine chocolate in China benefits global producers, according to Ontaneda. He forecasts a 100,000-ton supply deficit this year and a shortage of about 800,000 tons by 2020. That should translate into long-term prices of $3,000 to $4,000, he said.

“We’re going to have sustained prices for a long time,” Ontaneda said.

Exporters are also working to improve the traceability of beans to improve Ecuador’s reputation as a high-quality producer. Consumers increasingly want to know where their chocolate comes from as well as what labor and environmental conditions are in the country of origin, Ontaneda said.

“We don’t want to only increase production, we want that production to be very high quality,” he said. “In this, Ecuador is a global benchmark.”

To contact the reporter on this story: Nathan Gill in Quito at ngill4@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Steven Frank

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