Photographer: SIA KAMBOU/AFP/Getty Images

Top Cocoa Grower Cuts Farmer Price for First Time Since 2012

Updated on
  • Ivory Coast farmers will receive 700 CFA francs a kilogram
  • Reduction follows a 30% slump in international prices

Ivory Coast cut the price paid to cocoa farmers by 36 percent, a blow to growers in the world’s top producer who have benefited from increases each year since the country reformed the industry in 2012.

Farmers will get 700 CFA francs ($1.14) a kilogram for the smaller of two annual harvests that starts next month, said Bruno Kone, a spokesman for the government in Abidjan. That’s down from 1,100 CFA francs for the main crop.

The decision comes at a bad time for the government of President Alassane Ouattara. An army mutiny at the beginning of the year and a subsequent strike by public workers has weakened confidence in the economy and the price cut will affect an estimated 6 million people who earn a living from cocoa.

The cocoa industry has been in turmoil this year after prices plummeted and Ivorian exporters defaulted on contracts to sell beans after wrongly betting on higher prices. The crisis left the industry regulator facing losses of more than 200 billion CFA francs and farmers struggling to offload a record crop.

"The government is being pragmatic,” said Laurent Assouanga, a history professor at Ivory Coast’s University Felix Houphouet-Boigny in Abidjan who has studied the industry. He also owns 10 hectares (25 acres) of cocoa. “When cocoa is piling up at ports, it’s bringing no revenue, neither to farmers nor to the state. The government could no longer afford the luxury of maintaining a high price.”

“The decline of cocoa prices over the last couple of months justifies a lower farmgate price for the smaller mid-crop, also to make sure the system itself remains financially stable," Filip Buggenhout, managing director of cocoa at Cargill Cocoa & Chocolate, said in an emailed statement. He said the firm doesn’t profit from a higher farmgate price.

Cocoa futures were little changed at 1,682 pounds ($2,105) a metric ton in London Friday. Futures have dropped about 30 percent from a six-year high in July.

"When we look at London cocoa prices, they’ve plummeted and I think that the reduction in the farmgate price is a reflection of that,” Warren Patterson, a strategist at ING Groep in Amsterdam, said by phone.

Ivory Coast restructured its cocoa industry in 2012 as part of conditions imposed by the International Monetary Fund after an armed conflict a year earlier. The nation accounts for about 40 percent of global supply.

Some farmers in the center-west and southwest regions this week said they were hoping to receive about 800 CFA francs a kilogram.

A price of 700 CFA francs could mean a smaller mid-crop because lower prices could spur farmers to pick fewer pods and reduce field husbandry, Cocoanect said in a report Wednesday. Beans may also be smuggled into neighboring Ghana, which has said it will keep prices stable, the Rotterdam-based trader said.

Farmgate Prices

"We might also see cocoa being withheld toward the end of the season if it looks likely that we could see a rise again in farmgate prices for the 2017-18 season," Cocoanect said.

The new price may help farmers offload unsold beans that have accumulated in recent weeks. Exporters halted buying from farms before the announcement of the new rate, three shippers, who asked not to be identified because the matter is private, said this week.

The government also said on Thursday that it would scrap a 5 percent registration tax. The export tax for cocoa will also be cut to 16.5 percent from 22 percent, according to two officials with knowledge of the matter, who asked not to be identified because the decision hasn’t been announced.

If middleman and exporters don’t pay farmers the price set by the CCC, the regulator will consider a cocoa-purchasing system similar to Ghana, where the government directly buys the beans, Massandje Toure-Litse, managing director of CCC, said on Thursday.

— With assistance by Agnieszka De Sousa

(Updates with Cargill comment in sixth paragraph.)
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