Cocoa Rout Spurs Concern Some Farmers Will Return to Cocaine

  • Cocoa futures fell for five months, longest slide since 1999
  • In Peru, concern some growers may consider cocaine crops

The worst cocoa price rout in more than 17 years is raising concern that farmers in South America may quit growing the raw material used in chocolate, and shift to alternative crops such as cocaine, industry groups said.

The beans traded on ICE Futures U.S. in New York have tumbled for the past five months, the longest slide since May 1999. Cocoa is trading near the lowest since March 2013, pushed down by an expected global surplus.

In Ecuador, the world’s third-largest exporter, the industry is “very concerned” that the current price will discourage farmers, prompting them to seek better returns from bananas, corn, rice or shrimp, said Juan Pablo Zuniga, president of the National Association of Cocoa Exporters.

Cocoa for March delivery fell 0.6 percent to close at $2,072 a ton in New York on Friday.

Current prices barely cover production costs that range between $1,800 and $1,900 a ton, he said in a telephone interview from Guayaquil. Yields are typically below 500 kilograms per hectare (1,102 pounds) on aging and small properties, which make up about 40 percent of the country’s planted area. That’s far less than the 2 tons per hectare that farms with new, higher-yielding varieties can produce.

Peru Worries

Unfavorable weather spurred by El Nino’s weather pattern in Ecuador cut supplies by 18 percent to 248,000 tons in 2015-16. Output is expected to rebound this year to 280,000 tons, cementing Ecuador as the third-largest shipper of beans behind the Ivory Coast and Ghana.

In Peru, where a four-year cocoa rally through 2015 encouraged former coca farmers to quit growing the raw material to make cocaine, concern is growing that weak returns will encourage a return to illegal alternatives, said Eduardo Montauban, general manager of Peru’s coffee chamber.

While President Pedro Pablo Kuczynski wants to promote more cocoa and coffee production to deter illicit plantings, current prices may make that goal difficult to achieve.

“If prices fall further, that could reduce next year’s production,” Montauban said by telephone from Lima. “Coffee and cocoa have been the leading alternatives to the development of coca production.”

Peru’s cocoa crop production climbed about 59 percent over the past five years to 55,800 tons in 2015 as rising prices attracted more growers, Montauban said, citing government data. Growers had been encouraged by high prices after they sold their beans at an average of $3,096 a ton in 2016, and $3,200 in 2015. Futures have averaged $2,173 a ton this year in New York.

Citigroup Inc. and Rabobank International expect a global surplus in the season that started Oct. 1. Ecuadorean shippers are optimistic that futures will rebound to $2,500 to $2,700 in the second half of the year as global demand recovers, led by Asia.

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