Ivory Coast and Ghana’s cocoa plan will have limited effect on world prices

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Fitch Solutions analysts said plans by the world’s top cocoa producers Ivory Coast and Ghana to harmonise bean prices, is unlikely to have much effect on world markets because of differences between their marketing systems and minimal domestic processing.

Although the two countries produce about 60 percent of the global output, they exert limited influence over international prices. Cocoa prices have stayed low in recent years due to overproduction.

In response to this situation, the two countries struck a deal to coordinate their farmgate prices for the upcoming October to September growing season, a move meant to emulate the OPEC oil cartel. A report by Fitch Solutions however notes that it would be difficult to achieve, citing wide differences in how Ivory Coast and Ghana export their crop. The report said “though the countries’ influence on global supply and international trade is substantial…various structural barriers will inhibit their ability to manipulate the cocoa market”.

Discussions between Ivory Coast and Ghana followed intense market volatility over the last two years. Ivory Coast was forced to cut farmgate prices sharply last season while Ghana incurred losses of at least $400 million.

Fitch Solutions said in order to harmonise the prices, one of the countries would need to overhaul its market structure, but neither side has indicated it is prepared to make the necessary changes.

Ivorian farmers through state-orgnaised auctions, sell cocoa to international producers such as Barry Callebaut, meaning local prices are relatively responsive to global price changes. In contrast, Ghana’s Cocobod buys the beans at a price set at the start of the season, which prevents farmers from selling to other buyers.

In 2017, the African Development Bank agreed to fund the harmonisation plan. The fund will support the construction of modern storage facilities, farm rehabilitation and disease control.

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