Cocoa prices are characterized by extreme volatility and - contrary to economic
laws that state that prices of commodities are determined by production costs and
not by the interaction between supply and demand - cocoa prices are set and
determined on the futures commodities markets of London and New York, exclusively based on speculative activity using forecasts of future supply and demand based on parameters such as weather, political climate, currency fluctuations, etc.
As a result the cocoa sector in West Africa is near-collapse and cocoa farmers have been thrown deeper into poverty while chocolate multinationals generate billions in profits...
Please find below an exchange of correspondence between myself and the Secretary General of the Cocoa Producers' Alliance (Copal) - an organization that regroups all the cocoa producing countries - with regards to the severe crisis prevailing within the cocoa sector in West Africa.
TO COCOA PRODUCERS ALLIANCE
LAGOS, NIGERIA
ATT: MR. HOPE SONA EBAI
SECRETARY GENERAL
COPY: MS. MARIE OBARA
ASSISTANT TO THE SECRETARY GENERAL
RE: COCOA CRISIS IN WEST AFRICA
Dear Mr. Sona Ebai,
I am writing to you with reference to an email of
inquiry I sent to Copal over one and a half month ago
on 10 March, which unfortunately has remained
unanswered to this day. (pls see copy below)
Dr. Jean-Marc ANGA - head of the economics and
statistics dept at the ICCO - has provided me with
your email contact.
I am thus forwarding you a copy of my inquiry with
reference to the severe crisis prevailing within the
cocoa sector in West Africa.
I thank you for looking into my inquiry and I look
forward to hearing back from you in the near future.
Kind regards,
Arya A. Tajdin
Executive Director
Yajna Centre
Dar es Salaam, Tanzania
--- Yajna Centre
Date: Sat, 10 Mar 2007 08:49:30 -0800 (PST)
From: Yajna Centre
Subject: Cocoa crisis in West Africa...
To: info@copal-cpa.org
TO: Cocoa Producers' Alliance
Lagos, Nigeria
RE: CRISIS WITHIN THE COCOA SECTOR
To whom this may concern,
I am writing to you with regards to the severe crisis prevailing within the cocoa sector throughout cocoa producing nations. Please find below my both reflections and interrogations on this issue.
“ A well defined problem is half-resolved. (Einstein)
Source of the problem
STRUCTURAL OVER SUPPLY ( Supply > Demand )
Result:
Declining prices of cocoa on the world market
Vicious trap cycle
Structural oversupply of cocoa results in low and
declining prices of cocoa on the world market. To
make up for the loss in income resulting from the
initial price decline, farmers produce more cocoa, which
leads to a further excess supply of cocoa, further
reducing both world cocoa prices and farm gate prices, thus
further impoverishing and marginalizing both cocoa
farmers and cocoa producing and exporting nations.
This is a vicious trap cycle which MUST be broken.
Example: Ghana ( 2nd largest producer of cocoa in
The world)
In response to declining prices of cocoa on the
World market, Ghana increased its production from
320,000 MT to 450,000 MT between 1996 and 2000. This led to
an excess supply of cocoa on the world market, with a
resulting further 40% decline in the price of
cocoa during the same period, in conformity with King's Law.
“Structural over supply in the commodity market lies
at the heart of global poverty and instability. (Brandt Report)
Proposed solution to break the vicious trap cycle of declining
prices of cocoa resulting from structural over supply.
I. SET UP A COCOA CARTEL
Eight countries produce over 90% of the cocoa in the world;
Ivory Coast is the largest producer and exporter of cocoa with
around 40%; Ghana (20%),Cameroon (5%) and Nigeria (5%)
produce around 30%; Thus, four countries in West Africa produce
and supply around 70% of cocoa in the world. The balance
is supplied by Indonesia (13%) and other countries in Asia and
in South America.
Thus, if these countries set up a cocoa cartel similar to the OPEC
oil cartel they could mutually-agree on cocoa production quotas and
set prices -based on actual cost of production- which will be mutually
beneficial to all cocoa producing farmers and countries.
According to the following analysis measuring the impact on cocoa
prices resulting from adopting an OPEC-like cartel strategy to increase
and stabilize cocoa prices:
“The top 3 producers make up about 74% of total world cocoa output.
If they agree to reduce by 25% their respective outputs, the ending stock
ratio should dive to about 23%, enough to propel the price to more
than $2000/ton. This translates to 75% more dollar proceeds in absolute
amount for them even after taking into account the 25% reduction compared
to what they are getting at the current $850/ton with their present output.”
Source: www.icco.org/questions/opec.htm
QUESTION?
WHY THEN DO THE MAJOR COCOA PRODUCING COUNTRIES
DO NOT SET UP A COCOA CARTEL TO SET PRODUCTION
QUOTAS IN ORDER TO STABILIZE COCOA PRICES AT
REMUNERATIVE PRICES BASED ON ACTUAL COST OF PRODUCTION AND IN EQUILIBRIUM WITH THE MARKET LAWS
OF SUPPLY AND DEMAND?
I Thank you for shedding some light into this interrogation and I hope to hear back from you in the near future.
Best regards,
Arya A. Tajdin
Executive Director
Yajna Centre
Dar es salaam, Tanzania
Dear Mr. Arya Tajdin
Thanks for your concerns over the deplorable state
of the cocoa market. In March of 2006, President Olusegun Obasanjo
chaired a meeting of Heads of States of African cocoa producing countries in Abuja during which various possibilities were explored, once again.
We both know that The World Cocoa Economy cannot be Sustainable without remunerative prices paid to farmers. All the economic indicators ie;
income, employment,terms of trade,public finance all suffer from stuctural
oversupply. We can relate these to social and environmental consequences.
My question has always been, knowing all these, why have we unable to take appropriate action and can we really do so? For over 30 years we have looked at various instruments through international cocoa agreements; buffer stocks; market withdrawal, quotas, compensatory finance and other drawdown mechanisms be they IMF or Stabex of the EU. As part of the 5th Agreement we had a production management plan which didn’t quite succeed either.
After all these expensive mechanisms have failed I think what we need to do
today is to consume more cocoa and i think we have the scientific evidence
that there are immense nutritional and health benefits from doing so.
Increased consumption will pull demand and uplift prices eventually.
Increased wealth and sustained health from cocoa consumption could yield
better development prospects. That would be my initial reaction without
necessarily ruling out the fact the mechanical corrections can be equally effective.
Sona Ebai
MY RESPONSE TO MR. SONA EBAI
Dear Mr. Hope Sona Ebai,
Thank you for your email. Please find below my
observations and further interrogations:
In your email, you raise the same question which is in
my mind. You say: “My question has always been,
knowing all these, why have we unable to take
appropriate action and can we really do so? I was
hoping that your position within Copal and your active
experience in the cocoa sector would enable you to
answer this question…
Indeed, if both Copal and your member countries KNOW
what the problem is (i.e market imbalance resulting
from structural over supply of cocoa), then WHY has
Copal and its cocoa producing/exporting member
countries failed- over the last 45 years since the
creation of Copal in 1962- to mutually-set production
quotas in equilibrium with demand and set remunerative
cocoa prices based actual production costs, taking
into account the global Terms of Trade, inflation,
currency fluctuations, etc., to address, prevent and
resolve short, medium and long term market imbalances
resulting from structural over-supply of cocoa on the
world market ?
As for the second question you formulate: “ Can we
really do so ?”
In my cocoa cartel email proposal, I have CLEARLY
defined both the root cause of the crisis prevailing
within the cocoa sector ( i.e. structural over supply
of cocoa) and proposed a clear, effective and workable
solution to resolve the problem (i.e. setting up a
cocoa cartel).
Proposed solution
Cocoa cartel
Setting up a cocoa cartel among cocoa
producing/exporting countries to mutually-agree on
both annual production quotas in equilibrium with the
market forces of supply and demand and to set cocoa
prices based on actual cost of production – taking
into account the global Terms of Trade, inflation,
currency fluctuations, etc.
I also included the following analysis measuring the
impact on cocoa prices resulting from adopting a
cartel-like production strategy to increase and
stabilize cocoa prices at remunerative levels (which
ironically was posted on the ICCO website and which
has since unsurprisingly disappeared…!)
“The top 3 producers make up about 74% of total
world ccoa output. If they agree to reduce by 25%
their respective outputs, the ending stock ratio should
dive to about 23%, enough to propel the price to more
than $2000/ton. This translates to 75% more dollar
proceeds in absolute amount for them even after taking
into account the 25% reduction compared to what they
are getting at the current $850/ton with their present
output.”
Source: http://www.icco.org/questions/opec.htm
At this point, however, I am still confused and
perplexed as to WHY Copal and its cocoa producing
member countries have failed - since the creation of
Copal in 1962 – to implement the above common sense
economic strategy to stabilize cocoa prices at
remunerative levels. Unfortunately, it is still not
clear from your email/response what your position
(Copal) is on setting up a cocoa cartel. Thank you for
clearly communicating your views on this issue.
As you rightly say yourself: “ For over 30 years we
have looked at various instruments through
international cocoa agreements; buffer stocks; market
withdrawal, quotas, compensatory finance and other
drawdown mechanisms be the IMF or Stabex of the EU.
As part of the 5th Agreement we had a production
management Plan which didnt quite succeed either.
As Einstein said: “You cannot solve a problem using
the source that created it…”
The turbulent history of the profoundly unjust and
biased relationship between cocoa producers ( ex:
1937-38 Gold Coast cocoa farmers’ strike), Copal ( ex:
1964 Copal’s Producers’ Agreement – which was
inevitably destined to collapse since it failed to
address and tackle the root cause of price decline and
instability) on the one hand, and the cocoa “industry”
in the consuming countries on the other, have CLEARLY
demonstrated that it is in fact the cocoa/chocolate
industry in consuming nations that sets both cocoa
prices and the biased rules governing the cocoa trade
( as defined in the ICA) in their favor at the
detriment of both cocoa producing nations and cocoa
farmers. 70 years after the Gold Coast cocoa farmers
strike resulting from exploitative trading practices
and low and continuously declining prices of cocoa, it
is deplorable, sad and unfortunate to witness that
nothing has improved or changed in the cocoa sector in
West Africa today…
Furthermore, the history of both the International
Cocoa Agreements (ICA) and the ICCO over the last + 30
years also CLEARLY reveal a profoundly unfair and
biased position in favor of the cocoa industry in the
consuming countries to the detriment of both cocoa
producing/exporting countries and cocoa farmers,
despite the ICCO’s claim and official stated mission
that it represents the interest of both cocoa
producers and consumers alike in an effort to build a
“sustainable world cocoa economy”.
But behind the official objectives stated by the ICA
and the rhetoric preached by the ICCO, the facts
reveal quite a different story. I have gone through
the 2001 ICA to find provisions relating to this
crucial issue: ( PART FOUR: MARKET-RELATED
PROVISIONS, CHAPTER VIII. SUPPLY AND DEMAND,
Article 34, Market Committee)
In Article 34 (Part Four), with reference to Supply
and Demand, the ICA states:
1. In order to contribute to the greatest possible
growth of the cocoa economy and the balanced
development of production and consumption so as to
secure a sustainable equilibrium between supply and
demand, the Council shall establish a Market
Committee composed of all exporting and importing
Members.
(Observation)
Re: Section 1-3 of Article 34 relating to the
defined Role of the Market Committee
In section 1 of Article 34, it is strange to observe
that the role of the Market Committee is limited to
“reviewing trends and prospects” related to cocoa
production & consumption, stocks, prices, and to
“identify market imbalances…No provisions are made
for addressing, preventing and/or resolving market
imbalances.
In section 2-3 of Article 34, the Market Committee’s
role is again defined and restricted to “examining”
“forecasts” and other economic data on the global
cocoa sector provided by the Executive Director “for
illustrative purposes only…” No clear mandate is
given to the Market Committee to address, prevent
and/or resolve the root causes leading to medium and
long term structural market imbalances in order “ to
achieve and maintain equilibrium between supply and
demand at given level of real prices.”
QUESTION 1 > ENIGMA…!
However, what is even more mind-boggling and
incomprehensible to me at this stage is WHY are the
producing nations deliberately playing a game whose
rules are CLEARLY biased in favor of the
cocoa/chocolate industry in the consuming countries,
resulting in serious and grave negative economic,
social and political consequences for cocoa producing
countries…???
Why have cocoa producing nations chosen to become
members of an institution which CLEARLY EXCLUSIVELY
looks after the sole interest of consuming countries
(i.e. the cocoa/chocolate industry in consuming
countries) at the expense and to the detriment of
cocoa producing nations??? (they are actually paying
for their own oppression!!!)
Why do cocoa producing countries deliberately accept
to dig their own graves…??? Is it a lack of
understanding of basic economic laws and of the
workings of an inherently biased mechanism that
governs the cocoa trade in favor of consuming
nations???
After all, it is only in their own immediate and
future political, economic and social interest to
stabilize cocoa prices at remunerative level. PLEASE,
can you please shed some light into this mind-boggling
enigma…!!!
Interestingly, however, section 4 of article 34
states that: “ On the basis of these forecasts, and
in order to deal with the problems of market
imbalances in the medium and long term, the
exporting Members may undertake to coordinate their
national production policies.
QUESTION 2
With reference to section 4, can you please tell me
what specific actions cocoa producing/exporting
members have undertaken – on the basis of these
forecasts – “ to coordinate their national production
policies to deal with the problems of market
imbalances in the medium and long term? ”
As you know, I have raised all these issues relating
to structural over supply and market imbalances with
Mr. Jean-Marc Anga – the chief economist and
statistician at the ICCO- and have asked him what
policies the ICCO has developed and implemented to
address, prevent and/or resolve market imbalances
resulting from structural over supply. Unfortunately,(
but not surprisingly) I have so far not yet had any
response to my inquiry from Mr. Anga…
In his response to my initial cocoa cartel
proposition, Mr. Anga stated that: “Our current
mandate is therefore to recommend and to implement
measures that would achieve a sustainable world
economy with a balance between supply and demand.”
However, the demand and supply statistics published by
the ICCO itself reveal quite different story…
Finally, could you please tell me what solutions were
proposed/discussed during the meeting of Heads of
States of African cocoa producing countries in Abuja
in March of 2006 and whether the issue of setting up a
cocoa cartel among producing nations was
proposed/considered?
I thank you for shedding some light into the above
interrogations and I hope to hear back from you in the
near future.
P.s. please note that the above observations/questions
are not expressed as criticism towards Copal and/or
cocoa producing nations. They are simply genuine
reflections and questions aimed at better
understanding the position and actions/inactions
observed on the part of Copal and cocoa producing
nations over the last +40 years with regards to the
cocoa crisis to enable me to resolve some unknown
variables in the complex cocoa crisis equation so as
to better comprehend... Thank you.
Best regards,
Arya. A. Tajdin
Executive Director
Yajna Centre
Dar es Salaam, Tanzania.
RESPONSE FROM MR. SONA EBAI
Thanks for coming back to me on this issue. I will
send you a copy of the Abuja declaration when i get back
to my desk but it did not simply pertain to the creation of
a cartel but emphasized the need to booster consumption
beginning in the origin countries themselves.
When we talk about promoting the consumption of
cocoa two things generally happen:
1) if the prices are relatively good on the market
the countries see it as a waste of funds and,
2) if the prices are low countries claim there are
not enough funds to set aside for the promotion activities.
You have to agree that the source of structural
over-production is the origin countries themselves.
It can be the outcome of terms of trade pressure from single
enterprise economies, eg. cocoa. the lower the price
the more the feeling that higher outputs would yield
higher macro returns. we often, under these pressures forget
that 50 units sold at 20 dollars yield the same as 100 units sold
at 10 dollars and if the market needs only 50 units you actually
used less production means and therefore can be more sustainable.
We must all know this!
Consumption is directly linked to the eating of chocolate bars and
that’s why we have funded the construction to manufacture huge
factories to produce chocolates that the masses dont know what they are
for and cant afford it.
But the consumption of cocoa in the solid chocolate form is very recent, in
the mesoamericasw the partain was a nice rich warm broth, so why cant we go back to selling the dried beans in little heaps like we sell peanuts in the
local village markets where the people can buy, take home roasts in a pan
like peanuts, grind and produce a broth to which local condiments and
spices can be added. This way they get all the natural nutrients and health
benefits and can add spices of their local area that improve their acceptance. That’s my concept of consumption and we (have) huge markets of Nigeria and eventually China and India we may not need instruments of mechanical
correction.
When ever we think of diversification and we go out in search of funding from the West the recommendation is usually for these crops with boom and bursts cycles and structural oversupply problems- the aim simply to have the raw materials at give away prices... but we jump on them.
To have effective policy to run a cartel, production
or supply management we need an inventory of our
commodity/cocoa resources to a point at which
we can predict the outcome of policies not only on
prices but on global trade flows as well. How many of
our countries know and have records on the production
profiles of the trees we have?
You take a policy decision for example to systematically
treat all farms against pests and diseases, in fact you provide
optimum conditions for the trees to grow, right, without any
attention to your yield profiles your output jumps from 200000
tonnes to 6ooooo tonnes, how does that affect the market?
one wonders after the fact.
Thats why I ask the questions. we know all these things but we keep
plugging away. Several proposals have been made by serious
technicians working at the secretariat over the years with frustrating
implementation results.
more later.
Sona Ebai
MY RESPONSE TO MR. SONA EBAI
Dear Mr. Sona Ebai,
Thank you for your prompt response. I got some
information over the internet on the All Africa Cocoa
Summit held in Abuja in 2006 and acquainted myself
with the solution proposed by the Ministers at the
Summit to stabilize cocoa prices at remunerative
levels through 1) local value addition of cocoa and
promotion of local consumption for cocoa products to
absorb increases in production to offset
disequilibrium between demand and supply, and 2)
targeting emerging markets like China and India.
However, there are, in my opinion, several flaws and
weaknesses in using demand management to stabilize
cocoa prices at remunerative levels.
Currently, over 98% of cocoa produced in West Africa
is exported. Thus, BEFORE trying to address local
value addition and promoting local consumption of
cocoa, it seems logical and evident that cocoa
producing nations must FIRST address and stabilize
cocoa prices at remunerative levels for the following
obvious reasons:
•Currently, cocoa producing nations are caught in a
vicious trap cycle which prevents them from processing
the cocoa locally due to:
•1) Unstable, volatile and declining prices of cocoa
on the world market resulting from structural over
supply of cocoa. This in turn does not allow cocoa
producing countries to generate sufficient financial
resources to build the infrastructure and the capacity
to locally process the cocoa.
As you write yourself “ if the prices are low
countries claim there are not enough funds to Set
aside for the promotion activities.”
Breaking the vicious cycle
•Thus, cocoa producing/exporting countries must FIRST
address and resolve the market imbalance resulting in
structural over supply which translates into declining
real prices of cocoa.
•Once cocoa prices are stabilized at remunerative
levels, cocoa producing countries can generate the
financial resources required to build the
infrastructures and the capacity to process the cocoa
locally, and to promote local/regional consumption.
•Local value addition and promotion of local
consumption of cocoa is a crucial part of a wider
global strategy to significantly increase earnings,
create investment, employment, etc. and to GRADUALLY
break free from the world market and from exclusive
reliance on cocoa demand in the cocoa
importing/consuming countries. Subsequently, cocoa
producing nations can develop local, regional and
export markets for locally processed cocoa products.
However, you cannot develop local value addition
capacities and promote local consumption of cocoa if
you do not FIRST stabilize cocoa prices at
remunerative levels. This is self-evident! You cannot
put the cart in front of the horse…!
Furthermore,the root causes leading to long term price
decline ( HUGE stocks + 6 months supply/50% of annual
demand) and price volatility and instability (
speculation) are not even addressed!!!
Thus, for the above reasons, I ENTIRELY disagree with
the solution proposed by the Abuja Declaration, and I
am extremely disappointed that "leaders" from cocoa
producing nations have brilliantly failed to even
address to ROOT causes leading to continuously
declining prices of cocoa in real terms over the last
century ( i.e structural over supply, plethoric stock
levels (+ 6 months/ 50% of annual demand, speculation,
etc)and are incapable of elaborating more intelligent
and thoughtful solutions to a serious problem that has
been plagueing the cocoa sector and the entire economy
of West Africa for over a century! They are certainly
more skillful at begging money from the IMF and the
world bank than developing and implementing
intelligent economic development policies...real
Independence means self-reliance and must be earned!!!
Cocoa cartel
•Setting up a cocoa cartel would stabilize cocoa
prices at remunerative levels and will provide the
necessary foundation to further process the cocoa
locally and to promote local/regional consumption of
cocoa products, thus breaking free from the “ Colonial
Pact…”
Results from adopting a Cocoa cartel production
strategy
•Address and resolve market imbalance resulting from
structural over supply of cocoa
•Eliminate large and ever-increasing world stocks
which puts downward pressure on cocoa prices in the
long-run.
•Eliminate speculative activity which results in
volatility and instability of cocoa prices.
•Higher and more stable world prices for cocoa –
reflecting actual cost of production
•Higher farm gate prices and stable earnings for both
cocoa farmers and cocoa producing/exporting nations
•More stable economic, social and political climate in
cocoa producing countries
•Higher foreign exchange export earnings for cocoa
producing countries.
•Less budgetary dependence from so-called “aid” from
“donors” with biased conditionalities which keep
African nations trapped into the vicious “Colonial
Pact.”
•More stable cocoa prices and constant supply for
cocoa industry /processors in consuming countries,
with all the resulting economic advantages linked to
price stability for cocoa/chocolate processors.
I also read about Copal’s 1996 Libreville Declaration
on Production Management Plan (PMP)
•Attempted to reverse the long-term decline in the
price of cocoa with some form of global supply
management.
•Asked Copal member countries exporting 10,000MT or
more to reduce production to increase prices.
•Failed because producers broke their quotas.
•“ We had the Libreville Declaration on Production
Management (PMP) and we missed the opportunity. When
we fixed indicative tonnages for major producers, a
lot of them did not apply and a lot of producers were
outside the agreement.”
•However, I was happy to read that you said that
supply management was not impossible, but it would
require careful planning and financing. I would also
add “mutual-cooperation and trust.”
You write
“You have to agree that the source of structural
over-production is the orihgin countries themslves. It
can be the outcome of terms of trade pressure from
single enterprise economies, eg. cocoa. the lower the
price the more the feelin that highre outputs would
yield higher macro returns.we often, under thgese
presures forget that 50 units sold at 20 dollars yield
the same as 100 units sold at 10 dollars and if the
market needs
only 50 units you actualy used less production means
and therefore can be more sustainable. We must all
know this!”
Although both the ICA and the ICCO claim to be working
towards achieving a balance between supply and demand,
the reality and statistical data published by the ICCO
itself suggests otherwise. It is CRYSTAL CLEAR - based
on the statistical data of supply & demand, stock
levels, etc and on policies implemented by the ICCO
-that the REAL objectives of the ICA and the ICCO is
to constantly increase production levels above demand
to provide the cocoa and chocolate industry in
consuming countries with a cheap and abundant supply
of cocoa, at the expense of cocoa producing nations.
Interestingly, however, section 4 of article 34
states that: “ in order to deal with the problems of
market imbalances in the medium and long term, the
exporting Members may undertake to coordinate their
national production policies.
It is again unfortunate to observe that so far the
cocoa producing countries have failed to effectively
“coordinate their national production policies” to
deal with medium and long-term market imbalances.
Furthermore, What is a mind-boggling mystery to me is
WHY do cocoa producing countries deliberately play a
game whose rules are set by the chocolate industry in
the consuming countries and which are CLEARLY biased
in their favor and which result in serious economic,
social and political prejudices for cocoa producing
nations. As I said in my earlier email, they are only
digging their own graves and literally paying for it
too…!( as ICCO members)
Kings Law
•King’s Law states that a surplus/deficit in a
commodity will lead to a proportionally greater
decline/ increase respectively in the price of the
said commodity relative to the surplus or deficit.
•I.e. a surplus of 20% in the supply of cocoa will
lead to a decline of more than 20% in the price of
cocoa, and vice versa.
•A study conducted by the FAO on the elasticity of
price has estimated that a production surplus of 10%
translates into a price decline of 24% and vice-versa.
Thus, to offset price decline resulting from
structural over supply, farmers produce more cocoa to
offset the loss resulting from the initial price
decline, which leads to further excess supply, which
in turn further decreases the price and so on, in
conformity with King’s Law. This is a vicious cycle
which the chocolate industry is exploiting to its
advantage. Are cocoa producing countries aware of
this economic Law??? Has the ICCO ever mentioned
and/or explained the workings of this Law…??? I am not
surprised if they have kept it a well-guarded secret…!
Cocoa prices, stock and speculation
1) Cocoa prices
•"It is the cost of production that determines and
sets the price of goods and not market forces of
supply and demand." (David Ricardo, Principles of
political economy and taxation)
•Unfortunately, cocoa prices do not follow this law.
•Cocoa prices do not take into account real production
costs ( taking into account the global Terms of Trade,
inflation, currency fluctuations, etc.)
•Cocoa prices set on the commodities futures markets
of London and New York based exclusively on
speculative buying and selling of cocoa stocks on the
world market.
2. Speculation
•Cocoa prices characterized by extreme volatility and
instability due to speculation.
•Cocoa prices determined and set on the commodities
futures markets by speculative buying and selling of
cocoa world stocks based on future previsions of
supply and demand using parameters such weather,
political environment, exchange rates fluctuations,
etc.
•Thus, contrary to economic laws that state that
prices of commodities are set and determined by
production costs and not by the interaction between
supply and demand, cocoa prices are exclusively
determined by speculative activity.
•Furthermore, the “invisible hand” of the market has
been replaced by the invisible hand of the cocoa &
chocolate industry in consuming countries…
3. Stocks
•Annual production surpluses added unto existing world
cocoa stocks further serve to further depress cocoa
prices in the long run.
•Large stocks are used for speculative activity and
lead to further price volatility and instability.
Cause & effect flow chart: correlation between
structural over supply, world stocks, speculation and
cocoa prices.
•Therefore, excess cocoa stocks on the world market
must be eliminated to put an end to price instability
and volatility resulting from speculative buying and
selling of world stocks.
•To do so, market imbalance resulting from structural
over-supply must be addressed and corrected.
“`Rectify one angle of the square and the other
angles automatically rectify themselves…” Mahatma
Gandhi
“A situation where commodity exchange in Europe and
America unduly influences the international cocoa
price without consideration to cost of production is
unacceptable.” President Obasanjo , All Africa Cocoa
Summit 2006, Abuja.
Thank you for sending me a copy of the Abuja
Declaration as well as a copy of the Libreville
Declaration PMP ( I could not find either online)
Could you also please send me the following
statistical data:
Annual FOB cocoa prices ( in $US) from 1996-2006 for
individual cocoa producing countries. Thank you!
Thank you for your views/feedback on the above points.
Kind regards,
Arya A Tajdin.
RESPONSE FROM MR. SONA EBAI
Dear Mr Arya Tajdin,
Before we get drawn into a long discussion on theory and why and why
Nots one thing has emerged recently that is quite encouraging and that is
The realization that the World Cocoa Economy is one.
For it to be sustainable every stakeholder has to derive something
Positive from it.
1) As the end consumers of chocolate become more and more sophisticated
and aware and as we develop instruments to measure infinitesimal quantities
industry is going to continue to be under a lot of pressure to produce
chocolate and other cocoa products that are not only nutritious,
healthy, safe but also responsibly produced. If this is not the case they wont
buy chocolate and if they dont the whole economy cannot be sustainable.
2) If the chocolate manufacturers do not make the margins they need to
stay in business they will not continue to produce and the whole economy
will not be sustainable;
3) If industry does not find enough cocoa of good quality to continue
processing optimally they will not and like wise the whole economy will
not be sustainable, and,
4) If the farmers are not making remunerative incomes from cocoa or do
not have the impression that the wealth generated along the cocoa chain is
not being equitably distributed to all the stakeholders they will not
continue to produce cocoa and without cocoa they will be no world cocoa economy to speak of. So we are all in the same boat.
At our level we are embarked on two projects the first is to do an
inventory of all our cocoa resources from which we will attempt to
design our own econometric model.
Our model which will have two parts, one at the country level that the members can use to forecast output and domestic prices and one at the level of the Secretariat that does the global analyses on all the fundementals and the impact of policy decisions on trade flows.
Armed with these any other policies would at least be based on tangible
time series data that are dependable and regularly updated.
All the best,
Sona Ebai
MR SONA EBAI’S RESPONSE with reference to correspondence exchanged between myself and Mr. Jan Vingerhoets , Executive Director of the ICCO, copied to Mr. Sona Ebai ( see copy on this blog)) .
Dear Sir,
As a student I used to be called " The Angry African" especially when it
pertain to discussions on developmental issues so, in a way, I can see
where you are coming from.
However and especially as "A seeker of truth" you have gone a bit too far
in your reactions. Two things:
1) this is supposed to be an academic exercise and simply does not
consttute grounds to start the third world war,
2)I agree with the comments of Jan Vingerhoets on the length of your
emails. I have to print them and take home to read because of the office
workload. Imagine for one minute the number of people you copy in ICCO for example as opposed to their staff strengths and duties; if everyone of them was bent on reading your mails things would come to a screeching halt.
You have raised some good questions no doubt but after being in this
business for close to 25 years these are not new questions and as I
mentioned in one of my earlier comments we have tried so many solutions and still as its other name goes, commodities will remain a speculation with
all that comes with that word.
Another thing to take note of is the fact that these commodity agreements
are negotiated ands either accepted and/or ratified by sovereign States and
the Secretariats of Commodity Orgs. concerned simply apply the letter and
the spirit therein.
In a way therefore you insult the sovereignty of the parties to these
agreements which I am sure is not your intention.
Over the years most of the stakeholders have come to realize that the world
cocoa economy is one therefore we are all in the same boat and its
sustainability is incumbent upon all of us be it consumer or producer; we
have progressed to talking of the whole supply chain and hidden in those
seemingly empty words of the agreements is a lot of developmental action
going on with the participation of governments and the private sector- I
never thought I would see this day.
Countries set their priorities and commodity agreements will never do that
for them. Priorities begin by knowing what your resource base is in order
to predict the outcome of policy decisions on the global cocoa economy.
This is where we are focusing our attention now and believe me everybody
is on board.
I enjoy the debate though but I think if you re-aportioned your thoughts
into a mini series then we could take them a board one at a time, time
permitting.
All the best,
Sona Ebai, SG/COPAL
MY RESPONSE TO MR SONA EBAI WITH reference to correspondence exchanged between myself and Mr. Jan Vingerhoets, Executive Director of the ICCO, copied to Mr. Sona Ebai) .
Dear Mr. Sona Ebai,
I hereby wish to briefly respond to your email My wider struggle is for the economic independence of Africa. Africa won its political independence last century; this century Africa MUST win its ECONOMIC independence. I do not think that it is necessary to provide statistical data to demonstrate that Africa is FAR from being independent – in the real sense of the word.
The English have a proverb which says: “He who pays the piper calls the tune…” African government MUST stop dancing to the tunes of the IMF, the World Bank, the OMC and all other exploitative neo-colonialist institutions. Independence means self-reliance!
To do so, Africans must break free from the “Colonial Pact” which is still governing unfair and biased economic and trade relations between Africa and the rest of the world. The cocoa industry is a clear example of this reality. To do so, African nations URGENTLY need to develop and implement intelligent and coherent economic and development policies to break free from the resulting vicious and exponentially expanding trap cycle of economic poverty and misery.
However, it is up to Africans themselves to achieve this; their own survival is at stake. And yet, it is frustrating to observe that much of sub-Saharan Africa continues to rely and expect so-called “aid” and development solutions from those very same countries and institutions that have planted the seeds of many of the contemporary economic, social and political problems besieging the continent. History will testify to that claim.
As Einstein said: “ You cannot solve a problem using the source that created it.”
Unfortunately, it is disappointing and frustrating to witness the prevalence of such thinking and attitudes in the cocoa sector in West Africa over the last +40 years since so-called independence…
"Africa produces what it does not consume and consumes what it does not produce” That has become the basis of African economic enslavement and – in a sentence- defines the vicious trap cycle under which the Colonial Pact has imprisoned Africa and which Africa MUST break free from. This is my wider struggle. And I am prepared to contribute all I can in achieving this ambitious objective.
However, Africa will certainly not break free from this trap cycle of poverty with so-called “aid” handed-out by so-called western “donors” and by using "development" advice from so-called “development experts”. And I clearly cannot achieve it on my own, despite all my efforts and good intentions. I need to find committed Africans with intelligence and moral integrity who are determined to make this a reality. And I strongly believe that reforming the cocoa sector is an excellent starting point and can serve as a practical example for the continent towards achieving economic independence and a powerful statement to the world at large that the people of Africa have FINALLY decided to break free from (voluntary) servitude, economic oppression and exploitation.
Africa is at a crossroads. It can either chose to (finally) take its destiny in its own hands or let other people continue to chose and decide her destiny for her…and dig her own mass grave in the process…Hopefully the cocoa producing countries will chose the former.
This century Africa MUST achieve its economic independence. The future survival of the current + 700 million people of Africa and its future generations itself is at stake. It is now or never!
I hope and pray that my call will be heard.
Please note that I am prepared to voluntarily contribute in any way I can to making urgent and much-needed reforms within the cocoa sector.
Truthfully,
Arya A. Tajdin.
Founder & Executive Director
Yajna Centre
Dar es Salaam, Tanzania
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