The Falling Price of Cocoa Is Hurting an Entire Country

Updated on
  • Government may have to cut prices it pays cocoa farmers
  • President’s year starts with army mutiny, public worker strike

After overseeing sub-Saharan Africa’s fastest-growing economy and six years of relative peace, Ivory Coast President Alassane Ouattara is in the midst of a year from hell. First soldiers staged a mutiny, then public workers went on strike and now cocoa prices have fallen.

All told, the West African nation is facing the worst social unrest since Ouattara, 75, assumed power in 2011. With cocoa prices in London dropping more than 30 percent from July, the government in the world’s top producer may have to take a decision that could overshadow the achievements of Ouattara’s first term: cut payments paid to cocoa farmers as soon as next week. That will affect about 6 million people -- a quarter of the population -- who directly or indirectly depend on the crop for an income.

Workers harvest cocoa beans

Photographer: Jose Cendon/Bloomberg

“It’s a difficult decision politically and it clearly comes at a very bad moment,” Youssouf Carius, an economist, said in an interview in the commercial capital, Abidjan. “The last cocoa price was set before the election last year, but now market principles will have to apply. It would be a mistake not to do it.”

The regulator Conseil du Cafe-Cacao last year fixed the cocoa price at 1,100 CFA francs ($1.80) per kilogram. But a plunge in prices that followed a six-year high in July has prompted the organization to announce Tuesday that it will lower the price farmers will get at the start of the next harvest in April. The International Cocoa Organization expects Ivory Coast to produce a record 1.9 million metric-ton harvest this season.

Read more on the cocoa slump

Ouattara, a former banker, is considered a technocrat who prioritizes work over making public appearances. He’s pushed for large infrastructure projects such as highways and dams, and built a toll bridge across the lagoon at the heart of Abidjan. That crossing has come to symbolize his ambition to show that the country has turned the page on more than a decade of war and instability that ended six years ago. Ouattara’s ruling coalition kept its majority in a parliamentary vote last year.

Following years of mismanagement and price volatility that left farmers struggling to pay school fees, Ouattara guaranteed a minimum price paid to farmers at the start of the harvesting season.

His policies paid off. Public spending helped boost growth to an average 9 percent annually from 2012, more than twice as fast as the average in sub-Saharan Africa.

But the first signs of discontent surfaced after the government increased electricity fees last year, a highly unpopular measure that led to violent protests in the central city of Bouake. In January, a two-day nationwide revolt by soldiers firing in the air kept people locked in their homes, fearing a new schism in an undisciplined army.

Public Strike

After Ouattara quelled the unrest by paying the mutineers, government workers declared a two-week strike to demand changes to the pension system.

While there are 700,000 to 900,000 smallholder cocoa farmers spread across the country, they are too politically diverse and not sufficiently organized to hold widespread protests. But the consequences of a price cut will be eventually felt in the cities where rural inhabitants come to buy goods, said Ranie-Didice Kone, an economist at the University of Bouake.

“It’s a risky decision,” she said. “Ivory Coast is already divided politically. If he explains it well, if he explains why the price has to be cut, maybe the farmers will understand. Either way, there will be fallout because people will have less money to spend.’’

Reducing the price may also fuel criticism of the government in cocoa-growing regions that traditionally supported Ouattara’s predecessor, ex-President Laurent Gbagbo, the London-based chief economist for the Middle East and Africa at VTB Capital Plc, Raza Agha, said in an emailed note. Gbagbo is standing trial at the International Criminal Court in The Hague for crimes committed during a dispute over the presidential election that brought Ouattara to power.

Because the government is seen as unsympathetic to the farmers’ woes compared to its quick response to give into the mutinying soldiers’ demands, “perceptions of the government’s bias are being cemented,” Agha said.