Price slump hurts growers, consumers
IN FOCUS / COCOA
| Prices have plunged in alarming regularity on global markets and recovery in prices have been limited in scope and short-lived in duration. |
| As a result, manufacturers using the cocoa bean have made big profits in the falling price regime, but growers have suffered owing to poor price realisation for their crop. |
| The latest collapse in the crop for example occured only last week. The funds were blamed for it, but manufacturers made hay by picking up cheap stocks. |
| For the consumer on the street, the collapse in prices did not translate into any benefit. If anything, chocolate and confectionery prices have been steady and mildly rising. |
| Industry and fund buying have been blamed for the turbulence, as buying has tended to taper off every time a recovery in prices had started. |
| "This is bad news because it means the next generation of farmers will not replace old cocoa trees in view of poor realisations and in the medium term this will mean declining supply of cocoa", said plantation sector expert at a multinational company here. |
| Benchmark July cocoa futures in London recovered just two pounds last week at 776 pounds per tonne while September trades were done at five pounds higher at 793, according to agency reports. Cocoa futures hit a new low of 770 pounds a tonne last week, falling more than four percent at one stage when funds triggered sell stops. |
| Cocoa markets were finding it difficult to hold onto gains. More hedge cocoa was expected to come into the market and this coupled with speculative short covering was expected to complicate matters in coming months. |
| One cause for the volatility in cocoa prices has been political unrest in Ivory Coast, a major producer of the commodity. As the turmoil in that nation was expected to continue, deliveries were taking the form of distress sales. On the flip side, this meant lack of investments in the cocoa sector. |
| Cocoa arrivals at Ivory Coast fell to 1,199,893 tonnes between October 2003 and mid-May. Data from the |
| Coffee and Cocoa Bourse (BCC) said deliveries had been around 1,215,115 tonnes during the same period of the 2002-03 season. |
| This indicated the crop was being hit by turmoil and smuggling. However, hedge funds and some industry players holding onto beans, hoping for a rise in the price as a shortage would erupt, perhaps ahead of 2004 Christmas. Demand usually peaked at the end of the calendar year when tradition demanded exchange of chocolates as gifts in most developed nations. |
| Overall, though, a strong October 2003 to March 2004 harvest was expected at the world's top cocoa producer. In 2002-03 season, at the height of a civil war that split Ivory Coast, it produced a near-record harvest of 1.36 million tonnes as farmers stripped plants to raise cash for emergencies through distress sale, said the expert. |
| Industry and speculative buying has been concentrated at every fall. Buyers justified their action by stating that tensions in Ivory Coast indicated that stockpiles should be built up for worse times to come, the source added. |
| In a parallel development, Malaysia, Asia's top cocoa grinder, has been working to raise supply of locally-grown beans and replace some of the volumes that may be lost in west Africa in the future. |
| Malaysia processes 160,000 tonnes of cocoa beans a year into products such as butter, paste and powder, according to the Malaysian Cocoa Board (MCB) website. It intends to raise grinding volumes to over 300,000 tonnes within the next decade. |
| MCB was also responsible for proper prices to growers as well as higher production of beans, a more sustainable model than that in west Africa. Malaysia is the fifth largest cocoa grinder after the Netherlands, the United States, Ivory Coast and Brazil. |
| Major buyers in Malaysia were western confectioners such as Nestle, Mars, Cadbury and Hershey. US ground less cocoa in the fourth quarter of 2003. |
| A large supply of cocoa beans ground in Malaysia also came from Indonesia, besides Ivory Coast and Ghana. |
| Malaysian cocoa bean production dropped to 36,236 tonnes in 2003 from 230,000 tonnes in 1991owing to crop disease and depressed prices. A similar setback in west Africa would cripple the industry. In Malaysia, growers had switched to oil palms. |