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Cocoa prices to rise in 2020? (Part 2)

To read Part 1 of this article follow the link: http://futurefinance.eu/cocoa-prices-to-rise-ghana-2020/

In the midst of the pandemic outbreak, with much of the Ghanaian farmers being over 50 years of age and many workers being unable to work on the cocoa plantations, the expected production for the season is expected to hit a three-years-low output.

On top of that, seven months ago the Ghanaian Ministry of Employment and Labour Relations released information that the unemployment in the country is at 7.1 % (August, 2019). More than 417 000 Ghanaians are not even considering looking for a job in fear of being turned down during the interviews for a position.

Since then, there is no official press release if the situation has worsened but based on the facts that now there is a public ban on the gatherings and the cocoa business requires gathering of workers on an open field, trying to collect the goods, doesn’t sound promising.

What was the situation in Ghana before Covid-19?

 Back in October 2019 the top two largest cocoa growers, Ghana and Cóte d’Ivoire (with close to 60 % of the world’s output), have negotiated to impose a fixed ‘living income differential’ (LID) of $400 per tonne on all cocoa contracts sold for the season 2020/21 by either country. This meant that if major confectionery companies such as Mondeléz, Mars Wrigley, Nestlé, Barry Callebaut and Hershey’s have agreed to this than these third parties had to pay additional tax on every tone of cocoa the plan to buy for the respective season.

And while the plans of the West African neighbors were in the very best interest of the local farmers (in Ghana and Cóte d’Ivoire) the 5 big confectionery brands weren’t persuaded to change their sustainability scheme. Basically the sustain-ability program is something which has already been agreed upon and as such measure much easier to be continued than having to pay for something entirely unexpected.

As the two West African countries went on to re-examine their sustainability contracts and certifications at the end of 2019, the world wasn’t prepared for what was about to follow in 2020. The global pandemic has putted all plans to a hold.

Visualization of the labour of the Ghanaian cocoa farmers.
A sculpture symbolizing the Ghanaian cocoa farmers working.

Something that has intensified the already worsened scenario were the severe rainfalls that have fallen in Ghana, Cóte d’Ivoire and Nigeria at the end of 2019. They impose a problem for the cocoa production because of the interruption of the drying process of the seeds. As the seeds get moldy they might catch a disease and then become damaged goods.

In fact, according to the website http://www.ghanaweb.com, the rainfall from October was so much above the average that cities such as Kumasi and Accra (the capital is just 16.7 km from the town of Suhum) have seen their second wettest year since 1984. The total amount of precipitation has reached 1 370 mm in 2019, while the normal mean level per year is 1050 mm.  

You can read more about the rainfalls in Ghana here: https://www.ghanaweb.com/GhanaHomePage/features/2019-s-late-heavy-rains-explained-799674

How this affected the cost of the cocoa in 2019?

The price of the cocoa went up with 5.13 % and for the Q4 of 2019 it rose with 4.01% more than closing price it had at the end of 2018.

Conclusion

In conclusion, the amounts of cocoa produced by Ghana for 2020 are expected to hit a three-years-low. Even though the prices of the cocoa are now low (according to the ICCO* as of March 24th: 2208.10 US$/tonne) compared to what they used to be in the beginning of the year, it is highly plausible that they will steadily rise in the 3rd and the 4th Quarter of the 2020.

*ICCO – International Cocoa Organization

Disclaimer: This article has been written based on the collected information and reviews of the current situation in the world without being sponsored by any party. Therefore, any conclusions have been made solely by the author and by none else.

Written by: Lyubomir S. Evtimov