Ghana, Ivory Coast face off with global markets cocoa buyers over LID
Both Ghana and Ivory Coast are cancelling all cocoa sustainability schemes that U.S.-based Hershey runs in their countries, accusing the chocolate maker of trying to avoid paying a cocoa premium aimed at combating farmer poverty. This makes good a threat first sent by Ghana COCOBOD CEO Joseph Aidoo Boahen a fortnight ago, which was replicated by his Ivorien counterpart last week.
In a letter addressed to Hershey, the Ivorian and Ghanaian cocoa regulators accuse Hershey of sourcing unusually large volumes of physical cocoa on the ICE futures exchange in order to avoid the US $400 a tonne premium, known as a living income differential (LID) negotiated last year – but effective from the recently commenced 2020/2021 crop season – by the two countries that between them account for more than two thirds of global cocoa production.
The letter, which also accuses Fuji Oil Holdings’ Blommer subsidiary of aiding Hershey, was verified as authentic by spokespeople for the regulators.
Ivory Coast and Ghana, working in conjunction, warn they are also barring third party companies from running sustainability schemes in the west African nations on behalf of Hershey.
The schemes certify cocoa as sustainably sourced, allowing companies to market their chocolate as ethical and charge a premium for it.
The move shows that Ghana and Cote d’Ivoire are ready to play hard ball to ensure that the LID is paid. Its introduction enabled farmers in both countries to benefit from a 28 percent rise in the farm gate price both governments pay them per tonne for their cocoa beans.
Hershey said last week it was committed to paying the LID, and that the majority of cocoa it bought would continue to come from West Africa and would include the LID for the 2020-21 crop and beyond.
However, several market sources said Hershey had recently struck a deal with the ICE exchange to take physical delivery of a large amount of cocoa, allowing it to buy less from Ivory Coast and Ghana and so avoid the premium.
The west African nations last year introduced a $400 a tonne LID on cocoa sales for the 2020/21 season, but have since struggled to sell their beans as chocolate demand has been hit by the coronavirus-induced recession. But lower demand by chocolate makers is suspected to be, in part, deliberate pressure to withdraw the insistence by Ghana and Cote d Ivoire on the LID. The response of the two countries is a clear warning that they will not be intimidated.
Indeed, the world’s top two cocoa producers have also said they had withdrawn from membership of a U.S. cocoa industry association, accusing the body of helping companies including Hershey avoid paying the LID.
The Cocoa Merchants Association of America (CMAA) is “condoning and conniving with American companies against poor West African cocoa farmers”, the document, also verified as authentic by the Ivorian and Ghanaian regulators, read.
Ivory Coast and Ghana also said they are reviewing their membership of the Federation of Cocoa Commerce (FCC), a UK-based international organisation that aims to promote, protect and regulate the cocoa trade.
While both Ghana and Cote D’Ivoire rely heavily on cocoa export proceeds for both their budgetary spending and their foreign exchange inflows, and indeed cannot do without their cocoa exports, their withdrawal from the international cocoa market would effectively put an end to chocolate consumption worldwide. This means both sides could engage in a game of bluff to see who gives in first. However Ghana and Cote d’ Ivoire have the moral high ground since civil society worldwide acknowledges that cocoa farmers in both countries have not been getting anything near their fair share of revenues generated along the chocolate value chain and LID simply seeks to correct this.