Problem

Instability of cocoa trade

Nature:

Production is subject to large seasonal variations owing to changes in weather conditions and liability to pests and diseases. Because demand is relatively unresponsive to price, these variations in output tend to induce even greater price changes in the opposite direction. In addition, the need to export the entire crop each year (owing to cocoa's unsuitability for storage in tropical climates), and market speculation based on crop expectations before the final crop is known, tend to accentuate the amplitude of price fluctuations. Longer-term difficulties arise from the delay between planting and maturity which make it difficult to adjust supply.

In the 1960s a steep fall in prices had severely damaging effects on the economies of some producing countries (in the case of Ghana, leading to a 50% devaluation) and a general loss of confidence in the crop. Production capacity was severely reduced with the consequence that, in contrast to other commodities, insufficient cocoa is produced and countries are reluctant to increase production. The world's leading producer, the Ivory Coast, and the leading consumer nation, the USA have not joined the International Cocoa Agreements of 1972, 1975 and 1980. Insufficient provision for buffer stocks, other deficiencies in the Agreements' price-defence mechanisms, and lack of full international support perpetuate the instability of the trade.

Cocoa production has more than doubled in the decade to 1994 but, whilst consumption has also continued to rise, it has not kept pace with the explosion in production and prices for the producer have also failed to keep pace. In West Africa, cocoa farmers were left with no choice but to uproot their trees as they became unproductive and try another cash crop. Competition has come increasingly from countries in South East Asia, like Malaysia and Indonesia.

Problem Type:
E: Emanations of other problems
Date of last update
05.10.2017 – 18:56 CEST