Ivory Coast and Ghana cocoa crisis benefits Nigeria and Cameroon, according to Rabobank

According to Andrew Rawlings, associate Commodities Analyst at the Dutch bank Rabobank, the living income differential (LID) mechanism of Côte d’Ivoire and Ghana remains imprecise while countries still have a third to a quarter of their harvest to sale and industries have sufficient stocks, especially given this period of slow consumption. A crisis situation which benefits other exporting countries such as Nigeria and Cameroon, which have seen their prices, mechanically, increase and which supply certified stocks.

We hear a lot about Côte d’Ivoire in the recent talks on cocoa with the multinationals but what is happening in Ghana?

Côte d’Ivoire and Ghana are very closely working together. I think they have sold similar volumes in percentage of their total in terms of forward selling. I see them having a third or a quarter of their production left to sell this year. I think both will struggle to sell that because we are anticipating a slow demand recovery with levels remaining below 2018/19 and production is expanding.

So they are going to struggle to sell at the prices they want especially if they have higher local prices at the moment than they did last year and with the LID premium as well. It may be difficult for them to find buyers at the prices they want.

Some say that there is no sense in bringing in fresh cocoa beans onto the exchange. Why is it so?

Because if you bring in fresh beans from this harvest from West Africa, you will pay the premium. You may  make a loss compared to the exchange price. I am not saying that fresh beans won’t come into the exchange but it is most unlikely that it will be come from Ghana or the Ivory Coast. We see more Nigerian beans coming in to the Exchange.

We see the Exchange stock levels continuing to decline. At this time of the year, they usually reach a low level and then pick up in January with the main crop continuing to come in. But it is possible we don’t see that this year or at a reduced level.

So we can see more cocoa coming into the exchange from Nigeria, maybe Cameroon?

Quiet possibly. We should see coco processors and traders just holding on to their own stock instead of going to the exchange.

Are stocks high in the industry?

We see them declining at the moment and should pick up a little bit. The industry is probably more cautious and they probably have higher working stocks that what they would normally need in a non-Covid time. We see stocks rising at origin in Ghana and Côte d’Ivoire.

Initially, it was said that the LID of $ 400 would go into a fund so when cocoa prices go down, producers could still be paid correctly. Is this correct? Because every body says it goes to the producer directly.

I have not heard anyone saying that. Conceptually, everyone agrees that the farmer should get a higher price. But as of now, the mechanism is very unclear. We do not know how the LID payment is going to be used in practice as the fund hasn’t been used for anything that I’m aware of . Maybe further on, next year perhaps, there will be more transparency and development on that, who knows.

Because of the Lid in Ghana and Côte d’Ivoire, have prices risen in Cameroon, Nigeria and other origins?

Yes, it has been supportive for other origins. Côte d’Ivoire and Ghana make up around 62% of global cocoa production- at least this is what we forecast for this season. So the industry will have to buy cocoa from these two countries at some point.

The other exporting countries see their prices raise but not by $ 400. We have seen the country differentials decreasing in Ivory Coast and Ghana and rising in other origins but not by amounts to completely offset the LID payment. So, it’s a part shift. Ivory Coast and Ghana negotiated this country differential decrease because the futures’ prices have risen considerably these past weeks. They could adjust the premium because the futures’ price rose so much so the total price was favorable to them.