A spat between West Africa’s top cocoa producers and big chocolate companies intensifies, threatening production.
Cocoa farmers in Ivory Coast threatened on Thursday to stop their activities for “one to two years” in the latest escalation of a row between West Africa’s cocoa producers and large chocolate companies.
More than 500 farming industry representatives met in the Ivorian capital Yamoussoukro to discuss taking action against chocolate giants Hershey and Mars, which they accuse of trying to avoid paying a newly introduced $400 per tonne premium on cocoa. The farmers say they can pivot to producing cassava and other crops if their demands are not met.
The premium was introduced in July by Ghana and Ivory Coast, who produce more than 60% of the world’s cocoa, in a bid to improve the lives of impoverished farmers.
The possibility of a farmers’ boycott adds to the action taken on Monday by Ghanaian and Ivorian regulators to cancel sustainability schemes run by Hershey, which they accused of sourcing large volumes of physical cocoa on the ICE futures exchange in order to avoid the premium.
The schemes, which cover less than half of Ivory Coast’s cocoa exports, allow companies to charge a higher price for finished products by certifying that the cocoa is sustainably sourced.
The news has sent the price of cocoa rocketing, and the attempt by West Africa’s regulators and farmers to strong-arm the chocolate companies will likely hit production.
“This is one of many upside risks to prices that have come to the fore in recent weeks and has helped reverse the recent underperformance of cocoa relative to other agriculturals,” said Capital Economics in a recent briefing.
Both Mars and Hershey deny trying to avoid paying the premium, known as the living income differential (LID).
However, Hershey bought cocoa on the futures market last month rather than from commodity traders in a move that sidelined West Africa’s producers and is seen as a way to skirt the FID.
Large-scale processors usually buy direct from the producers rather than the futures market which is traditionally used by hedge funds and investors.
The move drove a record spike in cocoa prices, with the world benchmark for the global cocoa market rising by a fifth to $2,915 a tonne in November.
Chocolate companies are yet to react to the latest threat of a smallholder strike, which would seriously damage their ability to procure cocoa.
“We can stop our activities for one or two years. We don’t think industrials can do the same,” the president of one of Ivory Coast’s unions told reporters.