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by Bridget Boakye, at 09:38 am, June 14, 2018, Money Moves

Why these two African countries produce 60% of the world’s cocoa but get only 5% of the $100 billion industry

By now, almost everyone knows that Africa supplies most of the raw materials that power the world. In the case of cocoa, just two countries in Africa produce 60% of all of the world’s cocoa beans. Farmers in Ghana and Cote d’Ivoire do the back-breaking work of planting, harvesting, and drying the cocoa beans that bring to chocolate lovers around the world their most prized delicacies.

But according to a recent report by Bloomberg, these farmers make “only about 5.5 per cent of a global supply chain worth more than $100 billion”. This is even less than the 15% governments take as value-added tax on the sale of chocolate products in Western countries where chocolate is most consumed.

To put this in monetary terms, Huffington Post reports that one farmer in Cote d’Ivoire, which produces more than one-third of the world’s cocoa, made only a little over $9 USD per day. The farmer hadn’t even tasted chocolate before.

“He doesn’t even know what happens to his beans after they leave his plantation and can’t afford a chocolate bar that costs $2.70 in his community. Upon being offered one, he says “I didn’t know that cocoa was so yummy. Delicious,” a reporter on ground shared. The video of these Africa farmers tasting chocolate for the first time is below.

So why do Africans who work so hard but make so little from their efforts?

At a basic level, most of chocolate’s value is added from its processing and marketing. This means that cocoa processing companies like Nestle take the bulk of the industry profits.

Moreover, cocoa traders, processors, exporters and manufacturers all demand a share of the revenue As CNN.com explains, “cocoa bean farmers are at the bottom of a global supply chain that stands “firmly against [them].” Because the traders, processors, exporters and manufacturers all sit above farmers on that chain and demand a profit margin, farmers have little bargaining power and receive the bare minimum for their product”.

The price of cocoa is indeed fixed by the governments of these two respective countries. To get to the world market, their prices must be competitive, and as one farmer, Francis, in Cote d’Ivoire says, the “price is too low; the trees are old and diseased; [and he and his cooperative] can’t get finance to invest for the future”.

Cognizant of these issues, Cote d’Ivoire and Ivory Coast say they want to do more:

“To regulate global supply and grab more of the profit from the chocolate-making value chain, Ghana and Ivory Coast say they’ll coordinate production levels, bring their sales policies closer together and make sure that more of the crop is processed locally before it’s shipped out. They’ll also build warehouses to hold surplus beans and increase spending on marketing in an effort to boost consumption of the chocolate ingredient in their own region and in other emerging markets”, Bloomberg says.

So far, their efforts have not yielded great results. Although the two countries tried to collaborate on price last year, they ended up going their separate ways. The countries have found it difficult to predict and control cocoa bean output. Moreover, stockpiling is costly and difficult especially in the hot and humid climate of West Africa. Nature also takes its course each year on tree production, unlike oil.

Issues like child labor, illegal planting in forests, smuggling, and diseases affecting cocoa trees all compound the effectiveness of government intervention in this area.

Although cooperation between the two countries on cocoa production, processing, and marketing and sales strategy won’t be easy, it is well worth the effort. Bloomberg says cocoa is this year’s best performing commodity, and as chocolate demand booms in emerging markets like India and China, and the middle class in Africa grows and begins to demand richer chocolate products, it behoves Cote d’Ivoire and Ivory Coast to continue to try to improve their standing in this market.

Note: video in French but subtitles are in English. 

 

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