Aug. 16 (Bloomberg) -- Cocaine is proving a more resilient commodity than chocolate in Colombia, the largest supplier of the narcotic to the U.S.
Prices of cocoa beans, used to make chocolate, have dropped 40 percent this year in Colombia, South America’s third-largest supplier, as the cost of leaves processed into cocaine holds steady, according to data compiled by police and growers.
The chocolate ingredient’s slump in the past year, as concern about Ivory Coast supply disruptions subsides and European demand weakens, is threatening a more than decade-long campaign in Colombia to eradicate drug production that funds guerrilla movements. It’s also jeopardizing growers’ plans to become South America’s largest cocoa producer after Brazil.
“If you make an effort to invest in cocoa and then get unprofitable prices, and someone else shows up and pays cash for the other stuff, the farmer migrates to what’s easier,” said Ciro Alfonso Ramirez, who heads a northern Colombian regional office of the National Cocoa Growers Federation.
The number of hectares planted with coca leaves rose 3.2 percent in 2011, faster than the area sowed with cocoa, based on federation and United Nations data. While the government eradication campaign saw cocaine production slip 1.4 percent to 345 metric tons last year, cocoa output tumbled 9.8 percent.
A drive to reduce cocaine production has eroded funding for the Revolutionary Armed Forces of Colombia, the nation’s largest guerrilla group, improving security and drawing record international investment to Colombia. Planting cocoa is a key strategy to provide revenue to farmers who now are dependent on illegal crops, said retired Gen. Rafael Alfredo Colon, who heads a state-run illicit crop eradication program.
“We are worried about the instability of prices in international markets for cocoa,” Colon said. “The government is creating strategies to attend to those vulnerable communities.”
Cocoa futures in New York have slumped 20 percent in the past 12 months after reaching a 32-year high of $3,775 a metric ton in March 2011. Cocoa for December delivery slipped 1.5 percent to $2,400 on ICE Futures U.S. at 3:32 p.m. in New York, trimming a one-month gain fueled by West Africa supply concerns.
Slower chocolate demand may push prices to as low as $2,200 this year, Sterling Smith, a commodity analyst at Citigroup Inc., said by telephone from Chicago on Aug. 14.
Colombian prices for the bean have fallen to about 3,000 pesos ($1.65) per kilogram from about 5,000 pesos in December, according to Ramirez and federation figures. Coca leaves, the main ingredient in cocaine, fetch about 2,300 pesos per kilogram, while farmers can sell a paste made from the leaves that later is processed into cocaine for at least 1.8 million pesos per kilogram, according to government figures.
“Cocoa is bulky, you’re trying to sell half a ton at a time, and it’s hard to get to market when you’re in a remote area,” Adam Isacson, an analyst at the Washington Office on Latin America, said in a phone interview. “Coca is portable, and you have plenty of people to pick it up.”
Guerrillas including the Revolutionary Armed Forces, or FARC, and crime gangs help fund purchases of seeds and fertilizer and pay cash for coca leaves in remote areas of the country, where the chance authorities will catch lawbreakers is low, according to Isacson.
The crop can be harvested four times a year, more often than cocoa, which is the main legal crop being backed by the government to replace coca leaves since both crops thrive in hot and humid climates.
More than 62,000 families grow the leaves, compared with about 16,000 families making a living off the chocolate-making beans, based on United Nations and federation figures.
To support cocoa farmers, the government is helping them find buyers, offering loans, and planning to improve infrastructure like roadways to ease access to markets, said Colon, from the state-run eradication program. The efforts also are aimed at discouraging farmers from replanting coca after government spraying eradicates crops, he said.
The government aims to cut cocaine output by 25 tons to about 320 tons this year, a two-decade low, according to police estimates. Less drug revenue and military strikes against rebel leaders have weakened guerrilla groups and cut terrorist attacks since 2002, helping draw a record $13.2 billion in international investment to Colombia last year.
Colombia slipped to third from first as the world’s largest supplier of cocaine, behind neighboring Peru and Bolivia, President Juan Manuel Santos said last week. The global market for the narcotic is worth about $85 billion, with traffickers reaping most of the profit, according to the United Nations.
Getting more farmers to switch from illegal crops to cocoa also is part of Colombia’s ambitions to increase production of the chocolate ingredient and surpass neighboring Ecuador as South America’s largest supplier after Brazil, said Jose Omar Pinzon, executive president of the growers’ federation. Colombia has the potential to produce 250,000 tons in 2018 compared with 37,000 tons last year, said Pinzon.
“It’s not easy to convince farmers now to plant cocoa since we are coming out of a price situation that’s difficult,” Pinzon said. “But if you’ve lived through it, you know this is cyclical.”
Not for all commodities. According to Colombian police, concern about global economic growth hasn’t dented international demand for cocaine and domestic prices for coca leaves have held steady in the past 12 months -- making it a better bet than cocoa, coffee, orange juice and cotton.
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