West Africa, the world’s leading cocoa industry, is grappling with the aftermath of a disastrous 2016/17 cocoa season. Over the last year, international cocoa prices have collapsed by one third to ₤1,529 (US$2,077) by end-August 2017.
The drastic drop in prices reflects softening chocolate demand and a historically large cocoa crop from West Africa. The region is on track to produce an estimated crop of 3.44 million metric tonnes (MT), up 20% from the 2015/16 season. The impact of the cocoa price slump has been devastating. Cocoa farmers’ incomes were slashed, leading to panic in cocoa growing communities; government budgets were gutted with billions of dollars in losses from cocoa export earnings; and, child labour resurged on cocoa farms.
The price crash revealed, yet again, the inherent weakness of the region’s cocoa sector. Despite controlling over three fourths of the world’s supply, West Africa is a price taker, making it vulnerable to the volatility of commodity markets. Moreover, the region’s cocoa producers capture a tiny share of value in the cocoa value chain, estimated at 3% to 6%. Processors of semi-finished products (cocoa liquor, butter and powder) hardly fare better, capturing only 8% of the value. The lion’s share of value, 80%, is unlocked at the chocolate manufacturing and retail levels. In an effort to climb the cocoa value chain, and reduce exposure to volatile cocoa prices, the region’s cocoa producers – led by Côte d’Ivoire and Ghana, which together hold over two thirds of global supply – have focused their discourse on producing chocolate and confectionery for export.
However, West Africa, as the world’s dominant cocoa producer, is not ipso facto well-positioned to produce and export chocolate. While local chocolate producers have attracted attention in the press, they are unable to absorb even a tiny share of the region’s behemoth cocoa crop, owing to their niche production levels in the face of weak demand. Given that West Africa faces significant barriers to entry in making chocolate, the region should instead refocus its energies on further expansion in cocoa processing capacity.