By Dagny Zenovia
The African cocoa market is experiencing a move to new heights. A trading center dedicated to African commodities was recently opened in central China. The big chocolate industry is making promises to nurture their supply chains. The tables might be turning, but how can Africa win in the chocolate export market?
The status of African cocoa
African cocoa, with the world’s biggest producers being Ghana and Ivory Coast, produces nearly two thirds of the global supply of cocoa. This is the main ingredient for the chocolate industry, which is worth over $100 billion a year in sales. However, Ghana and Ivory Coast do not financially benefit from the chocolate industry.
President Nana Akufo-Addo, Ghana’s president, has said his “country is locked in a colonial-style relationship with the world’s chocolate manufacturers in which it provides raw materials only to import finished goods.”
This is why, in July 2019, both Ghana and Ivory Coast decided to fix a minimum price of $2,600 per tonnes free-on-board (FOB) that chocolate companies must pay for the 2020/21 season to gain access to Ghana and Ivory Coast cocoa. This is supposed to create the living income differential (LID) to be used to increase payments to farmers. Chocolate brands, including Mars, Olam, and Hersheys, reportedly support efforts to relieve farmer poverty. Traders argue this plan could lead to surplus production.
An example of a chocolate brand proactive support is Barry Callebaut’s Forever Chocolate initiative. In Ghana, it has brought a licensed buying company, Nyonkopa, to avoid a ban on foreign firms purchasing cocoa directly from farmers. Nicko Debenhamn, Barry Callebaut’s head of sustainability advises that the key to alleviating poverty is diversification away from chocolate. Thus, the initiative is offering tailor-made business plans to help farmers increase income by growing vegetables, making soap, selling honey, or keeping livestock. As a result, beginning in 2016, the initiative has moved 185,000 farmers above the $1.90 poverty threshold.
China has entered the chat
Central China’s Hunan province opened the first African Cocoa Trading Center, located in Changsha, to start selling cocoa mainly from Ghana. Later, it plans to bring products from other African countries. Hunan is reportedly at the center of China’s transportation network and close to booming consumer markets across the country.
The head of Hunan’s commerce department, Xu Xiangping, explained the province plans to build a major trading and processing center for Africa’s farming products. This will include cashew nuts, coffee, cotton, and rubber.
This new sub-center can be a step towards progress while balancing the massive hiccup the pandemic has caused the industry. According to Reuters of London, cocoa futures are forecast to end the year 10% down from current levels. Due to this drop, there is a big concern that the LID amount, that was supposed to alleviate poverty for farmers, may not be guaranteed.
Beyond the market forecast, Ghana and Ivory Coast’s challenge in gaining a real profit from cocoa also lies in the product. There is not much of a consumer market for chocolate in either of these countries. Attempts to manufacture local chocolate continues a rocky climb due to the expenses of refrigeration and ingredients, including the need to import milk. A sub-center that promotes fair trade for African export commodities could solve this if the prices and diversification are truly focused on supporting farmers.
What do you think? Is China’s African Cocoa Trading Center progress? How else can African cocoa farmers be effectively supported?