Cocoa destroyed to boost price

Some African countries depend on their cocoa crop

By Economics correspondent Andrew Walker

A group of four African countries has agreed to withdraw more than 250,000 tonnes of cocoa from the market and destroy it.

The decision was announced in Abidjan after a meeting of representatives of Ivory Coast, Ghana, Nigeria and Cameroon.

They said in a statement that the aim was to raise prices and improve the quality of cocoa on the world market.

Cocoa producers have had a difficult time recently. By February, prices were at their lowest level for 27 years.

They have recovered a little since then, but cocoa is still trading at about 55% of the price it fetched only two years ago.

Falling price

The International Cocoa Organisation thinks it in part reflects the declining role that governments are taking in trying to stabilise the market in producer countries.

Chocolate is a luxury product and demand fluctuates

Low prices are also due to the Asian and Russian financial crises of 1997 and 1998, which led to consumers in those areas eating less chocolate, driving down the price of the main ingredient, cocoa.

Although there is a recovery under way in most of the crisis-hit countries, it has not gone far enough to deplete international stocks of cocoa and bring prices back to their previous level.

The plan to destroy some of the next crop is an attempt to reverse that decline.

The amount of cocoa involved is equivalent to around 8% of the current level of the world crop.

The four countries involved say they account for about 70% of world production.

Commodities vulnerable

The Asian and Russian crises had a dramatic effect on many commodity prices, ranging from metals to what are called soft commodities, such as cocoa and coffee.

Coffee producers plan similar action

Coffee producers agreed earlier this year to withhold beans from the market if the price does not recover.

The international community no longer maintains large stocks of commodities as it used to, in an effort to stabilise the incomes received by commodity producers.

Farmers and suppliers of other commodities are now much more vulnerable to the swings in international market prices.

Commodity prices are particularly sensitive to general fluctuations in the economies of countries that consume them.

One group of commodity producers has managed to respond successfully to the recent difficult market situation.

The oil-producing countries in Opec restricted supply last year and in the process managed to push prices up more than twofold.