By Jacques Morisset,
Lead Economist and Program Leader, World Bank.
Chocolate is becoming more and more of a luxury item for most
consumers. The price of a box of 24 assorted chocolates can exceed $20,
and the most prestigious confectioners may charge as much as $35. But
For producers to live better they must earn more, but that has not happened for the vast majority of Ivorian producers in recent decades. Individual producers have not been able to increase their sales because yields have remained constant. In addition, the export price for cocoa has been trending downward since 1960, with an especially sharp fall following the price surge in the mid-1980s. Moreover, because of excessive domestic marketing costs and heavy taxation, Ivorian producers receive only 60% of the export price, whereas their counterparts in Cameroon and Nigeria garner more than 80%.
While the current situation for cocoa producers in Côte d’Ivoire is hardly cause for celebration, emerging trends suggest that the future could be bleaker still. On the demand side, new social and environmental concerns among consumers (opposition to child labor and the destruction of forests) will increase costs for producers, who must now certify their cocoa through increasingly sophisticated monitoring mechanisms. Consumer tastes are also shifting toward luxury chocolate, which is not good news for Ivorian producers, whose cocoa beans are generally not of the best quality.
On the supply side, recent changes also point to an even less favorable situation for Ivorian producers. Depletion of the available arable land and the labor force (the typical cocoa farmer is over 45) will prevent them from clearing new land, which has traditionally been their response to increases in demand in recent decades. Furthermore, it is estimated that one third of existing cocoa orchards will have to be replaced because of the aging of trees and the spread of epidemics in coming years. In addition, the effects of climate change, which have already begun to be felt, threaten the fertility of many farms, especially in the eastern part of the country.
However, these upheavals could turn out to be good news for Côte d’Ivoire, as they will force farmers and policy makers to react. The World Bank’s ninth economic update for Côte d’Ivoire suggests several approaches that could make the cocoa sector a driver of the economic transformation that the country is entitled to expect.
The first approach would be to launch a “technological revolution” that would enable producers to increase their yields. Such a revolution is not just a pipe dream, as the techniques, such as shading, grafting, and irrigation, have all already been mastered by the Center for Agricultural Research in Côte d’Ivoire, and their application has already quadrupled yields (from 500 kg to 2,000 kg per hectare) on pilot farms. The challenge now is to scale up the use of such techniques through support programs. It is important to understand that this transition from extensive to intensive growth is not just an option for cocoa producers; it is a requirement for survival in the face of the depletion of land and labor reserves and the imposition of new requirements by importing countries. In the long term, productivity gains should make it possible to harvest more cocoa beans in a smaller area, thereby supporting reforestation and encouraging producers to diversify their activities – the key to boosting their earnings, as has been successfully demonstrated in Thailand and Vietnam.
The second approach would be to set up traceability systems to enable buyers to ensure that their cocoa is “clean”. Such systems reduce costs at all stages of the domestic marketing chain by allowing producers to communicate directly with buyers. This direct link can be accomplished using mobile phones, which have already been successfully tested by Cargill and other operators. Soon, technologies such as blockchain should enable producers to participate directly and securely in decentralized sales channels. The resulting reduction in domestic marketing costs should ultimately allow producers to benefit from a larger share of the cocoa sales price.
The third and final approach would be to accelerate the development of a local processing industry to serve various niche markets. One possibility would be to meet the growing demand of the middle class in Africa (including in Côte d’Ivoire) for chocolate products and cocoa-based cosmetics and pharmaceuticals. Demand from consumers in industrialized countries for more refined chocolate products will also give local producers the opportunity to develop direct ties to distributors as origin labeling becomes more important. The expansion of demand for intermediate products (such as cocoa powder or liquor) in Asia also opens up opportunities for the local bean milling industry, the largest in the world – larger even than in the Netherlands – with a capacity of 750,000 metric tonnes per year.
These three approaches make it clear that, while the cocoa industry is changing, there are nevertheless opportunities for Côte d’Ivoire to improve the financial situation of its producers and create jobs all along the processing chain. In order to seize these opportunities, the main players in the industry will have to adapt, starting with producers, who will need to adopt new production techniques. The role of traditional intermediaries (cooperatives, wholesalers) will also have to change as marketing channels are being disrupted. Finally, and most importantly, the state will have to redefine its role in order to support the modernization of the sector, rather than viewing cocoa production merely as a source of revenue and a means of filling its coffers through excessive taxation and less-than-transparent marketing processes.
Jacques Morisset is the World Bank lead economist and program leader for Cote d’Ivoire. This article was first published by the World Economic Forum.