West Africa stranglehold clouds hopes for cocoa output revival

27.09.2016

Cocoa production will return close to demand levels next season, and stay slightly ahead of consumption for the rest of the decade – despite Asia's failure to embrace the bean as had been expected.

The International Cocoa Organization, in its first outline estimates for world cocoa supply and demand in 2016-17, forecast a "balanced" market – with both production and demand coming at a little under 430,000 tonnes.

That would represent a relatively small increase in consumption, from the level of 4.2 tonnes or so expected for 2015-16, which ends this month.

However, for production, it would mean a sharp recovery from the sub-4.0m-tonne level seen for this season, and which drove a supply deficit seen  at 227,000 tonnes – an increase on the 212,000-tonne number at which the ICCO last month pegged the shortfall.

Long-term outlook

The forecast for 2016-17 reflects expectations that the double whammy of a strong La Nina weather pattern and the unusually harsh incidence in West Africa of the Harmattan wind would not recur.

"We believe next year will not see the same situation," Laurent Pipitone, the ICCO director of economics and statistics, said, foreseeing that output and demand would be "more or less balanced".

And for the rest of the decade, output will likely "slightly" outpace demand, before returning closely into balance in 2020-21, as the impact of a stocks rebuild weighs on prices and thereby curtails output growth.

Currently, the "economic inventive is there for farmers to invest in cocoa", Mr Pipitone told the ICCO's cocoa market outlook conference in London.

But "if you have years of production increasing, that has an impact on price, and production changes".

'Big risk'

However, he also highlighted that production hopes rely largely on expectations of further growth in West Africa, which is already responsible for 74% of world output – an output stranglehold is a persistent market worry.

"There is a risk for the industry to have such as concentration of production in one small area," he said.

This demographic leaves the market in particular vulnerable to any "political crisis" in the region, or the "spread of a new disease", Mr Pipitone told Agrimoney.com.

"It is a big risk for a chocolate industry estimated to be worth $100bn."

'Coming from a small base'

While there is scope for an increase in production in Latin American countries such as Nicaragua and Peru, "it is coming from a small base", Mr Pipitone said, with the region overall expected to provide 16% of global output this season.

And in Asia, responsible for 10% of global cocoa output, production has gone into reverse, undermined by the loss of land to urbanisation, besides farmers' preference for growing other crops, such as oil palm trees.

"In Asia, you are looking at an economic advantage for farmers to grow other crops," Mr Pipitone said.


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