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The cocoa price route continues, leaving African farmers worried.
This has never ever happened in the history of this country.
Why are we totrik coco farmers this week? Why while weather conditions for coco farming looks good, the falling prices could mean less income for farmers and prompt policy adjustments by regulators.
The fumer warfare is on the haunts of every position.
That's the management teach. On today's podcast, we'll look at the state of the coco market and how after years of sky high prices, the falling market is causing new problems for the world's largest cocoa producing countries. I'm Jennifer's Abasaga and this is the Next Africa podcast, bringing you one story each week from the continent, driving the future of global growth with the context only Bloomberg can provide. Joining me today is Bloomberg Soft Commodities reporter Mumbi guitar Mumby.
Always great to have you back on the podcast. Thanks for joining us, so Mumbi. When we have had you on the podcast before, we have talked about the sky high cocoa prices Fortunately, I've spoken to you since then, but here's how we ended that last discussion on the podcast.
The price is really dictated by both elements, supply and demand. So we'll continue to focus on how much production is coming out of africost and Ghana and how much chocolate companies are able to still continue producing chocolate at these really high levels.
And so now shockingly we're seeing prices going in the complete opposite direction. Quite a roller coaster of volatility that we've been witnessing with coco. Talk us through what's happened from your vantage point.
You're right, Jen, it's been such a roller cost we've pretty much wiped out the rally of twenty twenty five and twenty twenty four, and now we are back to the levels that we saw in twenty twenty three. I guess what they say about higher prices curing higher prices is true, because we've seen a lot of demand distraction. What happened is that as chocolate t is passed on the higher cost consumers that are cutting back on their
consumption of chocolate. At the same time, the manufacturers also cut back on their use of coco because they wanted to protect their bottom line. They wanted to protect their imagin so they've ended up using less coco in their products. I'm sure you've seen your chocolate bards have gotten smaller. Other manufacturers have opted to remove the chocolate in their branding and now they're just saying it's chocolate tea. All this is taking away demand from coco. That's industrial demand
and consumer demand. And when you have higher prices, to bring back demand, you need to have lower prices, and that's what's causing the price correction that we are seeing in the market right now.
Yeah, chocolate EA as a description is quite interesting for a consumer and also I'm sure for manufacturers to adjust to. But if we talk about what's happened with the climate, We've spoken to you about a few bad years of bad weather, but it seems like growing conditions have actually improved this year. Will that be enough to turn the tide for farmers and for them to be able to capitalize on this moment?
I mean, it's been a series of bad weather and now they are having good weather. That's good in the grand scheme of things, that they'll have a much better crop. However, when prices are falling this first, it's hard for the farmers to capitalize. Production is not expected to recover that much. Just because we've had good weather doesn't take away from the diseases that are currently ravaging farms in West Africa. It doesn't take away from the lack of investments that
has happened in the last few decades. So there's still structural issues that continue to affect farmers. Well. The weather is good right now, but some of the aspects that are more structural, like diseases and under investments still remain. They might collect a decent crop if prices do not recover. If prices continue falling, then you don't get as much from the crop that you have.
Is sting, which is probably why we're seeing some of the West African producers resulting to new measures to adjust. Can you speak to what's been happening in Ghana and also top grower Ivory Coast as they adjust to the falling cocoa price.
Now, I Recosts and Ghana really find themselves in a very difficult place when the market was rallying. We've spoken about this previously. They have a pricing mechanism in which they set firm gate prices and those prices are locked in for maybe six months or three months now when the prices were rallying, they could not immediately help farmers capitalize on those prices. Now, just when they had started raising firm gate prices, prices on the futures market have collapsed.
Now ivery coasts and Ghana have farm gate prices that are above the market price in the world. How do you sustain price is that are well above what other regions are being paid for. That's what's put them in a really difficult place because exporters are saying, how do we buy coco from you at five thousand dollars when the market outside is three thousand dollars. It doesn't make sense for us. Those margins will really be squeezed. And now we've seen coco piling up in every court. We've
seen coco piling up in Ghana. And that's where now the regulators are going back to the drawing board and asking themselves difficult questions. Do we need to keep this pricing mechanism where we lock in prices months in advance without any insight on what happens to the market. They did not anticipate this correction in prices. No one anticipated that prices would fall this far this first and now you need to reconcile what farmers are being paid and what the market price is in the world market.
And Mambi just hold that thought. I want to dig into that more. We're going to take a quick break and when we come back, we'll look at what the long term future for cocoa production could be like, especially when it comes to the farmers. As you just brought up. We'll be right back. Welcome back. Today we're looking into cocoa and how West African production is adapting to cheaper market prices. Our soft commodities reporter Mumbi Guitau is still
with us, so Mumbe. Just before the break, we were talking about the adjustments and the shifts that we're seeing Ghana and Ivory Coast, talking about considering the volatility in the market when we talk about the farm gate price, were the farmers ever able to capitalize on some of the higher prices when they were at their peak.
Only regions where the markets are liberalized, like Cameroon, Nigeria, Brazil Ecuadora able to capture the high prices. Farmers in Ivery Coast in Ghana did not capture those high prices. Yes, the regular late has raised prices in the last few months and in the last few seasons, but that has not completely translated to them capturing the whole rally. At some point last year or in twenty twenty four, we
had prices reached twelve thousand dollars a ton. The highest farm gate price that every cost and Ghana have gotten to is about five five hundred dollars a ton, So there's still a lot that they were not able to capture when the market was really high.
Which is quite unfortunate, especially when you think about some of these contracts that were not able to be fulfilled for some of the farmers. Potentially that's the reason why we're seeing some of the reaction. I mean, how do you interpret it, Mumby.
It's such a lossful farmers in every coast and Ghana. They missed out when the prices were rallying, and now they're going to even suffer as prices are falling. As you've painted the picture in every coast, farmers are sitting on cocor that no one wants to buy. And as for reasons I explained earlier, wouldn't exporter pay much more in a market where you're not guaranteed to be receiving as much from your buyers. And I think now farmers
are looking at a situation where they are stuck. They are left in a situation where they don't benefit regardless of whichever direction the market moves, whether in their favor or against their favor, They're still very stark in a bad situation.
What do you make, Mumbi of what the authorities have been saying about the latest prices?
You really sit and you feel for the authorities because they are stuck to a traditional model that worked for them when the market was not volatile, when the market barely moved fifty dollars a day. Now we have a market that's moving five hundred dollars two hundred dollars a day. So in a market where the market was more predictable, that model makes sense. Now it's becoming harder for them
to defend this model in such volatile times. When you set up price in October only for it to now be changed again in March, how do you stand by that position when between October and match the futures market is moving wild. When we started the season we were at seven five hundred. Right now we are just in the middle of the season and we are at three thousand. Farm gate prices haven't moved an inch during that period, apart from Ghana, which recently cut its firm geit price.
So when I look at the authorities, I just keep asking myself, how do you continue to defend a policy that is not working for you and for the farmers that you're there.
To protect sure and especially if this is a moment that they haven't been faced with before, Right, Mambia, is this something once in a generation shift that we're seeing? Will this potentially set the precedent for the future our soft commodities? As a soft commodity reporter, are you used to this type of volatility and the up and down? I mean, what do you think this moment maybe symbolizes? Considering some of those characterizations you just mentioned.
I think for being in the market, we are very used to saying un chartered territories, unprecedented times. But these for most veterans that I have spoken to, people that have been in the market for forty years say they have never seen anything like this. The volatility in the market is like anything they have ever seen, where the market is moving wild So This has really introduced traders, regulators, farmers, manufacturers into a very new area that they don't have
experience in. Everyone is just trying to learn as they go, and it's hard to say whether this will be the market for the foreseeable futures. I think demand is still a big question. Does industrial demand come back that these prices are falling back? Do consumers come back and buy a lot more chocolate? Do regulators change the way they function? Ghana has said they will just domestic prices depending on what happens in the futures market. Is that going to
be the way forward. If we start to see these structural changes stick, then volatility is going to be the name of the game going forward.
And let's just finish then on demand. Will consumers see this in the short term? Will mumbeego to the store and start to see falling prices? I mean, when does this hit the reality the day to day for people and consumers. Who these manufacturers and producers really need to turn the tide.
That's a big question, But at least in the short term, it takes time. There's usually between a six months to twelve months lag effect, just because prices are falling on the terminal market doesn't mean that prices for the consumers will fall immediately. We didn't see the same price in chocolate prices when futures were rising because right now manufacturers are still walking through stock piles that were bought at
six thousand, seven thousand levels. No, we may not see short term relief, but as we go to us the end of the year, we might see more promotions, we might see a bit more discount. But for now, we've just stuck with expensive chocolate until manufacturers start to input chipper coco in their supplies.
Mumby, thanks again, we always love having it on the podcast. That's Bloomberg's Soft Commodities reporter Mumbi Katan. Here's some of the other stories we've been following across the region this week. Kenya's Central Bank still has room to cut its benchmark interest rate after lowering it ten times in the past one and a half years to help spur economic growth.
That's according to Governor Kama Fugi. A stable currency, but nine oil prices and a forecast of abundant rains will help the Central Bank of East Africa's biggest economy maintain its accommodative policy and Butswana's inflation will peak at just over five percent this year, down from a December forecast of six point two percent, due to quote stabilizing exchange rate dynamics. That's according to the Bank of Botswana Governor
the Sego Museki. And you can follow these stories across Bloomberg, including the Next African Newsletter, will of course put a link to that in the show notes. This program was produced by Adrian Bradley and tiba Adebayo. Don't forget to follow and review the show wherever you usually get your podcasts, But for now I'm Jennifer's Apostaja. Thanks as always for listening.