1. History of the Ivorian cocoa and world market

 History in Côte d’Ivoire

Cocoa was introduced in Côte d'Ivoire towards the end of the 19th century. As soon as it gained independence on August 7, 1960, Côte d'Ivoire chose economic liberalism and positioned agriculture as the fundamental pillar of its development.

Since then, cocoa cultivation has been brought to the forefront of the Ivorian economy to the point where it now accounts for nearly 15% of GDP and 40% of export earnings. It also provides more than 1/3 of the Ivorian population with direct and indirect income.

The coffee and cocoa sector was liberalized in the 2000s before being reformed at the beginning of 2012 to return to a marketing system that guarantees a producer price at least equal to 60% of the international price.

Côte d'Ivoire, the leading producer of cocoa beans since the 1980s, processes less than 50% of its production. The amount of crushed beans, grew at an average of 5% per year over the period 2013-2021. However, the bean crush rate decreased from 31% in 2014/15 to 26% in 2020/21. This decrease in the processing rate is explained by a faster increase in cocoa production compared to the implementation of new grinding units.

The crushing capacity has seen a positive evolution from an estimated 545,000 tons in 2012-2013 to an estimated 869,000 tons in 2020-2021, the largest ever in the world before the Netherlands. This evolution is explained by the expansion of the installed capacities of groups such as Barry Callebaut and Cargill, but also by the establishment of new units such as that of the Guan Chong Berhad group (GCB).

National production has grown rapidly and steadily, from 1.5 million tons of cocoa beans in 2011/12 to 2.2 million tons in 2020/21, an average growth of 7%/year over the period, if we exclude the 2016/17 campaign characterized by the persistence of the climatic phenomenon- El Niño - which led to a fall in cocoa production1.

Global Market

The main cocoa-producing countries in 2021 are Côte d'Ivoire with an annual production of about 2.2 million tons of beans per year (about 40% of the world production), Ghana with an annual production of 1 million tons (20%) and Indonesia with an annual production of 739,000 tons (12%).

Cocoa production is mainly concentrated in West Africa, which produces nearly 75% of the world's cocoa. However, the continent processes less than half of its production and only 21% of the world production is processed on the continent.

It should be noted here that the world production of cocoa has been steadily increasing since 1960. Indeed, it increased from 1.2 million tons in 1961 to 4.97 million tons in 2020. This increase is explained by the expansion of planted areas and, to a lesser extent, by the increase in yields per hectare, which rose on average from 352.4 kg to 503.6 kg between 1980 and 2020. However, annual production remains volatile, resulting from the impact of weather changes on crops as well as the spread of pests and diseases affecting some production areas (South America and West Africa).

Demand for cocoa beans, driven by bean grinding and trade in semi-finished cocoa products, has been growing at an average of 4% per year, from 4.1 million to 5 million tons from 2015 to 2021. Thus, the largest importers of cocoa beans, which are the Netherlands, the USA and Malaysia, accounted for, respectively, 21%, 14% and 13% in volume of the world imports during the period 2014-2021. They mainly import high quality whole beans.

In terms of outlook, the International Cocoa Organization (ICCO) forecasts a continuation of the positive dynamics of demand for cocoa beans and its semi- finished products recorded in recent years by importing countries.

Finally, it should be noted that Côte d'Ivoire, the world's leading cocoa producer, is the main supplier of cocoa beans, butter, liquor and powder to the world's largest chocolate exporters (Germany, Belgium, the Netherlands, USA, etc.).

Evolution of the cocoa price

Cocoa is mainly traded on the London and New York commodity exchanges. Subject to rumors or expectations of stock shortages, poor harvests, overproduction, climatic or political events, the market is volatile and speculative.

It is clear that the world cocoa economy is subject to constant fluctuations in international prices. The life cycle of a cocoa tree (which yields a large crop only after three to five years) does not allow producers to respond quickly to changes in demand.

 

2. Cost-effectiveness

In Côte d'Ivoire, cocoa factory operations that process cocoa into finished and semi-finished products can achieve an average net operating margin ranging from 7% to 10%.

 

3. Regulations and government measures

In Côte d'Ivoire, the State has set up several structures to regulate the sector.

This is the case of the Council for the Regulation, Stabilization and Development of the Coffee-Cocoa Sector, also known as the Coffee-Cocoa Council (CCC), created by Ordinance No. 2011-481 of December 28, 2011, which is the body responsible for regulating and stabilizing coffee and cocoa prices

The board sets coffee and cocoa prices at the beginning of each coffee and

cocoa marketing year.

For its part, the Interprofessional Fund for Agricultural Research and Advice (FIRCA), is the body charged by the State and the agricultural profession with the mobilization of resources and the financing of applied agronomic and forestry research programs.

In addition, since 2014, FIRCA has been in charge of implementing the "Orchard Productivity Improvement" component of the 2QC (Quantity, Quality Growth) Program of the Coffee-Cocoa Sector.

In addition, it should also be noted that the Côte d'Ivoire Ghana Cocoa Initiative (CIGCI) will be established in August 2021. The mission of this institution is to coordinate the cocoa institutions and policies of both countries in order to promote, foster and defend their collective interests on the international market.

It is also responsible for ensuring the effective payment of the Decent Income Differential (DID).

Reform of the Coffee-Cocoa sector

In 2017, the Ivorian State, decided to apply a Single Exit Duty (DUS) differentiated according to the nature and degree of processing of cocoa. Initially set at 14.6% for beans, it has been increased to 13.2% for cocoa mass, 11% for butter and cake, 9.6% for powder and 0% for chocolate.

 

This reform was taken in order to promote the transformation of cocoa into cocoa products.

The Government has also undertaken, within this same framework, to:

  • v create a fund to support investment in the cocoa processing sector, with a budget of 10 billion CFA francs;
  • v reduce the approval deposit for nationals wishing to start bean milling activities to 25 million CFA francs instead of 200 million CFA francs for other actors;
  • v grant domestic companies a subsidy of 35 CFA francs per kilogram of

processed cocoa, up to a maximum of 50,000 tons.

Pricing Mechanism

It should be noted here that Côte d'Ivoire and Ghana, have put in place in July 2019, a price setting mechanism for the international trade of cocoa beans.

Indeed, this system takes into account a fixed living income differential in order to provide producers with a decent income. The Decent Income Differential (DID) has been designated as an amount of US$400 to be paid for each ton of cocoa from Côte d'Ivoire or Ghana sold from the 2020/21 season onwards in addition to the market price.

Less DRD's objective is to achieve a target floor price of $2600 per ton for anticipated cocoa sales.

Thus, on October 25, 2022, the CIGCI decided to boycott the international meeting organized on October 26 and 27 by the World Cocoa Foundation, because, according to the institution "of the non-respect of the commitments of the multinationals which negotiate the differential of origin downwards.

 

4. Constraints

  • The growing disinterest in the activity of "cocoa producer", due to low remuneration of producers;
  • The productivity of Ivorian cocoa trees remains low compared to cocoa trees in some Latin American and South East Asian countries (Ecuador, Indonesia, etc.);
  • Global warming has a significant impact on the production performance of cocoa trees;
  • Soaring prices for agricultural inputs, including fertilizer, due to the conflict between Russia and Ukraine, may have a negative impact on cocoa production growth.

5. Opportunities

  • o Côte d'Ivoire, the world's leading cocoa producer, accounts for 40% of the world production of cocoa beans;
  • o The need for new processing units to reach the 50% processing target by 2025 from about 30% in 2021;
  • o The growing consumption of cocoa products in Asian countries (Japan,

China, South Korea, India...);

  • o Numerous market opportunities: cocoa is used in the chocolate industry as well as in the pharmaceutical and cosmetic industries, and its waste can be used as bioenergy;
  • - The actors of the sector have initiated initiatives to improve human resources through training, such as :
    • v The launch on October 20, 2022, of the sectoral vocational school for training in

agribusiness and industrial maintenance in Yopougon;

  • v The opening in 2018 of the Bülher Group's Center for Food Processing Training and Innovation (CFIA), which offers an overview of the cocoa bean processing
  • o The possibility to benefit from the differentiated DUS on cocoa products;
  • o The cocoa processing activity is eligible to the investment code (benefit of tax and customs exemptions).

Swot Analysis

 

6. Conclusion and Recommendations

Côte d'Ivoire is the world's leading producer of cocoa beans with a production of 2.2 million tons in 2021, which is more than 1/3 of the world production. It also has the largest crushing capacity in the world with a capacity of approximately 867,000 tons/year and a level of processing that is clearly increasing (724,000 tons crushed in 2022)2.

However, Côte d'Ivoire only processes about 30% of its national production and the government aims to increase this processing rate to 50% by 2025.

To do this, the state has initiated reforms to increase production and local processing capacity.

It should also be noted that global consumption of chocolate (the main

derivative of cocoa) remains growing at around 5% per year since 2015.

However, unlike other sectors, even if the profitability ratios recorded by Ivorian grinders are relatively attractive, investing in cocoa processing requires heavy investments.

Finally, it should be noted that challenges exist in the cocoa industry, including volatility in world prices, climate change and remuneration of small producers.

In conclusion, and in view of the above, investment in the cocoa processing sector in Côte d'Ivoire seems judicious, provided that there is expertise in the sector, reliable outlets and a robust financial capacity to sustain the activity.

Our score 6.4/10