IVORY COAST—The Ivorian forward sale of cocoa is currently under scrutiny for potentially hindering both farmers and the state from maximizing profits amidst rising cocoa prices, as revealed in a recent report by the Economic and Financial Affairs Council (ECOFIN), a financial news and analysis company.
With Ivorian cocoa prices surpassing the $10,000 per ton mark this week, there’s growing concern that the existing advance sales system may need reevaluation to adapt to the market.
The system, managed by the Coffee-Cocoa Council (CCC), operates on an anticipation marketing model, where the cocoa prices are predetermined at the beginning of every campaign.
This means that 70-80% of the harvest is sold in advance to local or foreign exporters through electronic auctions, with the remainder sold through cash transactions.
While this model has historically provided stability by cushioning producers from volatile international prices, ECOFIN argues that it may now be limiting potential gains amid the current surge in cocoa prices, calling for reforms to introduce a greater flexibility.
ECOFIN’S report criticized the system’s lack of responsiveness to current market conditions- the fixed advance sale price, based on past season prices and adjusted differentials, fails to reflect the significant price fluctuations seen in the current market.
The report also mentioned the system’s rigidity as a stumbling block that limits opportunities for quality differentiation and additional premiums for producers.
This means that, unlike producers in other countries who can negotiate bonuses for quality improvements, Ivorian cocoa producers are constrained by fixed regulatory prices, with no provisions for quality-based incentives.
In response to these shortcomings, ECOFIN is advocating for a more flexible approach that will benefit both the country and farmers.
Suggestions put forward by the report include introducing clauses to allow for price adjustments based on current market movements and potential premium payments in case of price surges beyond agreed thresholds.
This proposed overhaul aims to align the advance sales system with current market realities and ensure that both farmers and the state can fully capitalize on the shaky cocoa market.
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