Cocoa Price Plunge: CORI Blames Demand-Supply Imbalance, Calls for OPEC-Style Bloc
The Cocoa Roundtable Initiative (CORI) has pinpointed a significant imbalance between demand and supply as a primary factor behind the current global downturn in cocoa prices. Comrade Adeola Adegoke, the Director-General of CORI, revealed this analysis over the weekend, highlighting the complex dynamics affecting the international cocoa market.
Historical Context and Contributing Factors
Adegoke explained that when cocoa prices soared to approximately $12,000 per ton in 2024, it was largely due to low production levels in major African cocoa-producing nations such as Ghana, Côte d’Ivoire, Cameroon, and Nigeria. The International Cocoa Organization (ICCO) estimated a production shortfall of about 180,000 metric tons during that period.
Several factors have exacerbated this situation, including:
- Climate change effects, particularly El Niño, disrupting agricultural cycles.
- Low productivity per hectare, with most African countries yielding only 300kg to 500kg.
- Urban expansion encroaching on farmland.
- Competing government interests favoring other agricultural commodities over cocoa intensification.
For instance, Ondo State, Nigeria's largest cocoa-producing state, has historically prioritized oil palm expansion over cocoa under past administrations, reflecting broader policy misalignments.
Additional Challenges and Market Volatility
Other contributing elements include pests and diseases, inconsistent government policies, inadequate infrastructure, and significant pre- and post-harvest losses due to knowledge gaps among farmers. Limited climate management techniques and exposure to international market volatility further worsen the scenario.
Adegoke emphasized that this volatility is aggravated by the continued reliance on outdated models by most African cocoa-producing countries. He noted the absence of reforms to accommodate regional bloc integration, akin to OPEC in the petroleum sector, which could help regulate supply and manage gluts in the international market.
Nigeria's Free Market System and Current Struggles
Nigeria operates a free market system following the dissolution of its Cocoa Board in 1986. While the country benefited from peak cocoa prices in 2024, it is now facing the adverse effects of the market downturn. Prices have fallen to unsustainable levels that no longer accommodate profit margins or rising input costs, threatening to erode previous gains in the sector. Notably, input costs in the open market have remained unchanged, squeezing farmers further.
Government Intervention and the Living Income Differential
Adegoke stressed that government intervention is crucial to ensure the survival of smallholder cocoa farmers. Without such support, there is a high risk of compromised quality control, reduced premium production, and increased poverty as per capita income declines.
The Living Income Differential (LID), adopted by Ghana and Côte d’Ivoire, has not sufficiently mitigated the impact of falling cocoa prices as anticipated. While commendable, the initiative's limited visible impact calls for careful evaluation, especially for countries considering its adoption. The condition of smallholder farmers in these and other non-adopting countries remains concerning due to persistent price declines.
Call for Transparency and Regional Collaboration
CORI commended governmental efforts in sustaining Africa's production capacity, which continues to dominate global cocoa output despite challenges. However, it reiterated a call for greater transparency and information-sharing from Ghana and Côte d’Ivoire, which together contribute about 60% of Africa's cocoa production, out of the continent's 70% share of global supply. This collaboration is essential to jointly address the effects of the LID on the current price downturn.
Long-Term Solutions and Recommendations
The immediate and long-term solution, according to Adegoke, lies in establishing a regional bloc by African cocoa-producing countries, similar to OPEC, to regulate cocoa sales on the international market. This move would help manage demand and supply forces, ultimately stabilizing prices.
Other recommendations include:
- Reviewing existing laws governing cocoa regulatory boards to address price volatility, with an emphasis on regional integration and collaboration.
- Discouraging the politicization of the cocoa sector to foster growth and investment opportunities.
- Promoting policies that support processing, value addition, and farmer-centric approaches, irrespective of the ruling political party.
In Nigeria, there is a pressing need for a regulatory board to oversee, support, implement, and enforce policies that protect the country's cocoa agenda. Such a board should not engage in buying and selling but rather regulate industry practices, protect stakeholders, ensure compliance with market standards, and enforce policies safeguarding operators and consumers across the value chain. Prioritizing farmer support is essential to ensure sustainable production, improved productivity, and enhanced welfare, thereby guaranteeing better income for cocoa farmers.
