Côte d’Ivoire bans shake cocoa market
By satishkanady | Published: 24 January, 2011
A combination of a self-imposed export ban and European Union sanctions targeting Côte d’Ivoire could curtail talk of a cocoa market surplus during the current crop year.
In January, ICCO, the International Cocoa Organisation, forecast a market oversupply of 100,000 tonnes based on assumptions of an uninterrupted supply from the West African country, which accounts for around 40 percent of global production.
The EU has imposed sanctions on a number of trade and economic bodies in Côte d’Ivoire as it attempts to cut off financial support to incumbent president Laurent Gbagbo, who has refused to leave office following elections in November, which the United Nations says were won by his opponent, Alassane Ouattara. The two parties have been locked in a stalemate. The EU’s sanctions include measures against the main cocoa exporting ports of San Pedro and Abidjan, which are seen as providing revenues for Mr Gbagbo’s illegitimate regime. International bodies hope that preventing Mr Gbagbo from paying his soldiers may undermine their support for his cause.
On Saturday 22 Jan, Mr Outtara added to market concerns by ordering a ban on exports of cocoa and coffee. The previous Friday, cocoa had hit a six month high of just under $3,400 per tonne.
The cocoa market has been experiencing occasional supply deficits for the past few years. The 2006-2007 season saw a shortage of 258,000 tonnes, with deficits of 52,000 tonnes and 79,000 tonnes in 2007-2008 and 2009-2010, respectively. Despite supply forecasts, trader Anthony Ward at the hedge fund Armajaro made headlines by acquiring 7 percent of the global market during July 2010, pushing prices – already inflated by concerns over weather and political instability – to highs of $5,000 per tonne.
Political and security developments have a major impact on trading prices and futures. Since the start of the election dispute in Côte d’ Ivoire, key export hubs, such as San Pedro, have been operating with only minor disruption. Cocoa arrivals from hinterland farms could be disrupted by severe violence, but so far arrivals have continued with only minor fluctuations, and to some extent the deteriorating political outlook is offset by the seasonal harvest peak.
“The sanctions could cause operational difficulties for Western operators. In the current volatile climate, we expect markets to react strongly to any hint of possible export,” says Anne Frühauf, an analyst at political risk consultancy Eurasia Group. “Over the past decade, the Ivorian economy has demonstrated some resilience to crisis. Commodities such as cocoa and increasingly oil have been major contributors to a modest uptick in growth over the past two years – reaching 3.8 percent in 2009 for the first time. However, a prolonged political crisis, or indeed a repartitioning of the country, would make it impossible to continue on this positive trajectory and GDP growth could slump back into negative terrain, similar to the early 2000s.”
Political instability has been dogging the country’s efforts to revitalise its ageing cocoa sector for close to a decade. A large swath of cocoa orchard in the country is aged and under yielding. For want of timely reinvestment, the country’s production has been flat for the last ten years, according to Laurent Pipitone, director in the economics and statistics division at the ICCO. “There has been a drastic drop in the average production from the plantations that has large presence of aged plants. Poor yield is forcing farmers to shift to other crops,” Mr Pipitone says.
The unrest since the 2002 civil war which split the country has substantially undermined investors’ confidence in Côte d’Ivoire’s cocoa industry. Despite increasing interest in the commodity as emerging markets, including China and India, begin to consume more, the country has missed out on large amounts of potential investment.
