Key indicators for Ghana, Cote d’Ivoire merger to control Cocoa price

It’s a known fact the price of a product is determined by the law of supply and demand, therefore, a supplier of a product and the market for that product most often determine the product’s price.

Unsurprisingly, most of the top 10 cocoa-producing countries are from warm, wet climates, similar to where the bean originated. Nations across four continents make up the top 10, four of the top five nations are in Africa. According to UN Food and Agriculture Organization, Cote d’voire, Ghana, Nigeria and Cameroon are amongst the top five producers of cocoa to the world market

However, prices of cocoa on the world market are not determined and controlled by any of the top five producers who are in Africa, which is a worry.

Ghana is second to La Cote d’Ivoire in terms of top cocoa producing nations and produces premium quality cocoa beans to feed the world’s confectionery market. Ghana produces about 20 per cent of world cocoa annually and together with La Cote d’Ivoire, both nations produce about 60 per cent of world cocoa annually.

Ghana produces an average of 900,000 metric tonnes of cocoa yearly and this translates into about $2 billion in revenue. Revenue accruing to La Cote d’Ivoire and Ghana annually is around $6 billion, an amount which is very low considering the fact that the world cocoa market is valued at an estimated $100 billion.

ALSO READ: Ghana and Cote d’Ivoire suspend cocoa beans sales

It is believed that a coalition by Ghana and Cote d’Ivoire to determine cocoa price will go a long way to help both countries boost earnings at the international market. Current deliberations are underway by stakeholders of the two countries and talks are ongoing to make this coalition a reality.

Taking a cue from a similar group like the Organization of the Petroleum Exporting Countries.  OPEC is an intergovernmental organization of 14 nations, founded in 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), and headquartered since 1965 in Vienna, Austria. As of September 2018, the then 14 member countries accounted for an estimated 44 percent of global oil production and 81.5 percent of the world’s “proven” oil reserves, giving OPEC a major influence on global oil prices that were previously determined by the so called “Seven Sisters” grouping of multinational oil companies.

Factors that may support the Alliance

However, for Ghana and Cote d’Ivoire to achieve the dream of largely influencing global price of cocoa, there are salient factors that must be addressed by both countries before the much awaited dream is actualized.

Cocoa is a perishable and seasonal commodity, and before the dream of both countries would be actualized a system to store Cocoa beans for longer period in order to drive higher the demand must be developed by both countries else majority of the cocoa beans will go bad when stored under undesirable conditions. Such storage silos are capital intensive ventures which would cost both economies huge sums of money. Are they ready to pay the huge price which will enable them have a say on world price of cocoa?

Also Ghana largely depends on cocoa for huge foreign exchange earnings, in the region of $2 billion per annum. As such when the two countries decide to hoard the cocoa beans after harvesting and buyers also refuse to buy the cocoa beans at the price set, it will cut the foreign exchange earnings to the country, thereby negatively impacting the economy. For both countries to effectively dictate world cocoa prices, alternative sources of foreign exchange must be introduced to help stabilize their economies in the likely event of earnings from cocoa reducing should their prices be considered too high in the international market.

Furthermore, industries whose main raw material is cocoa beans especially the Chocolate industry might be pushed to replace the raw cocoa bean with cheaper synthetic materials in manufacturing. This will heavily affect the demand for cocoa, and the eventual price which can be quoted on the market. Switching to cheaper alternatives may occur if the agreed price is considered too high by consumers.

In addition, trust between Ghana and Cote D’Ivoire will matter a lot if the aim of both countries to manage supply as a means to boost earnings from cocoa export is to be achieved. There should be mechanisms in place to curtail incidences of smuggling the stored cocoa beans from either Ghana or Cote D’Ivoire. Such instances if not discouraged will defeat the purpose of the alliance, which is to limit to influence the market price of the commodity.