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Ivory Coast Hopes to Gain From the First World Cocoa Conference

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Companies pledge to invest more in the Ivory Coast's cocoa sector.

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MINYANVILLE ORIGINAL Cocoa producers and companies dependent upon the commodity have become concerned in recent months about the sustainability of the cocoa supply. Demand for the cocoa bean has remained constant in Europe and North America while expanding rapidly in emerging countries such as China and India. However, supply has not followed. The London-based International Cocoa Organization, or ICCO, and companies dependent on the commodity worry supply shortages may occur by 2020.

To brainstorm on possible solutions and set future goals "more than 1,000 delegates including government representatives, industry executives, traders and producers" have met in Abidjan, the economic capital of the Ivory Coast, at the Hotel Ivoire for the first World Cocoa Conference. France 24 International News reports the ICCO organized the conference to "discuss a sustainable future for the industry in the face of growing demand" by organizing the different initiatives of various companies. The meeting will also deal with issues such as farmer wages, certification, and child labor. The last issue has caused public relations headaches for many companies with the most recent notable case being The Hershey Company (NYSE:HSY), which may face a lawsuit for allegedly buying cocoa from a supplier that used child labor.

Sponsors and participators in the event include Nestle (ETR:NESR), Bureau Veritas (EPA:BVI), Syngenta (NYSE:SYT), Barry Callebaut
(ETR:BCLN), Olam International (SGX:O32), and Mondelez International (NASDAQ:MDLZ). Speakers include Mars's sustainability head Barry Parkin, president of Mondelez Europe Tim Cofer, and Barry Callebaut's head of global sourcing Steven Retzlaff.

The West African country has a lot to gain from hosting the event. The Ivory Coast is the largest cocoa producer in the world and controls about 35% of the world's cocoa market. Cocoa accounts for 40% of the country's export revenue and 20% of its gross national product. Last season producers in the country processed 440,000 metric tons, up 22% from the prior growing season.

Cocoa is mostly grown in tropical regions found 10 degrees north and south from the equator. As a result, West Africa countries such as the Ivory Coast, Nigeria, Ghana, and Cameroon will have produced approximately 70% of the world's cocoa, or 4 million tons, by the end of this year according to the ICCO. The world receives 60% of the its cocoa from the Ivory Coast and Ghana alone. The selling of the cocoa generates $13 billion in wealth for the four top producers.

According to Businessweek, cocoa prices have increased by 15% on the ICE Futures US in New York because of anticipation of dry weather in West Africa.

The country also stands to gain from the conference by instilling more confidence in multinational companies, who worry about political instability. Last week, Ivory Coast President Alassane Ouattara dissolved the government on November 14, and cocoa prices spiked 3.4%. Last year, a disputed election resulted in five months of violence and a ban on bean exports causing cocoa prices to reach a 32-year high. The International Monetary Fund and World Bank have made the reform of the cocoa sector a condition for the Ivory Coast receiving debt relief.

What has been announced during the conference so far?

The Dow Jones Newswires released a report yesterday that President Outattara announced the government will levy an export tax on semi-finished cocoa products based on their equivalent weight in beans. Semi-finished cocoa results from roasting and grinding cocoa beans. Previously the government just taxed based on the nature of the cocoa product being exported.

President Ouattara stated he wants more cocoa-processing activities to occur in the Ivory Coast. However, Edward George, head of soft commodity research at Ecobank, said the new tax will cause the opposite to occur. More raw beans will be exported to save on taxes and fewer cocoa beans will be manufactured into a semi-finished state.

The government removed a tax break given to cocoa grinders in September, and it has impacted their business. The new taxes will exacerbate their situation. French cocoa processor Cemoi stated it had invested less money into the Ivory Coast's cocoa sector for the season that began on October 1. Currently, farmers and laborers process one-third of the beans domestically.

The government will have 70% to 80% of the harvest sold before the crop is harvested, and it will provide a price guarantee of 60% of international values to the farmers.

To help boost productivity, companies have initiated programs to help increase cocoa production and efficiency in the 50 countries around the world that produce the crop. In the case of the Ivory Coast, orchards have begun to deteriorate and have not been replaced at a sustainable rate. The cocoa labor force has also aged, and the younger generation has gravitated towards rubber and palm oil jobs, finding the work less tedious.

BusinessGreen reported Mondelez International executive vice president Tim Coffer announced this past Monday at the conference that the company plans to invest $400 million over the next 10 years in boosting production capacity for cocoa farmers in the Ivory Coast, Indonesia, Brazil, Ghana, India, and the Dominican Republic. Calling the program "Cocoa Life," $100 million has been allocated for the 75,000 farmers in the Ivory Coast through 2022. Mondelez hopes to improve the living standards of the farmers while teaching best sustainability practices. These practices include reducing biodiversity loss, reducing soil erosion, enhancing water efficiency, and enhancing crop yields.

Cargill renewed its commitment to its Cargill Cocoa Promise during the conference. The company is working toward training cocoa farmers, supporting cocoa farming communities, and investing in long-term sustainable production of cocoa.

Jean-Pierre Halkin, head of the European Commission development unit, spoke for the European Union by stating the EU has interest in helping with the sustainable growth of the global cocoa industry.

Twitter: @ChrisWitrak
No positions in stocks mentioned.
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