The ‘Africanization’: The risk of the cocoa market

Ecuadornews:

This week has not been easy. José Carvajal in recent days, stopped at the entrance of his plant (Durán) has had to see how trucks full of cocoa, the raw material used to produce processed, have had to leave as they came. The high prices recorded by the product makes the purchase difficult or even that it just does not arrive. “They say it’s because of the rains,” Cinthya, one of her operators, told him in an attempt to explain to her boss why the lack of supplies has made processing difficult.

Carvajal smiles, he knows that is not the reason. The lower offer these days, corrects, is due to the wisdom with which certain traders act in this era: if there is an upward trend, the product is retained in warehouses to bring it to the market when it gives more income. Is that the ton, in this last week, came to have an international price of $ 2,454, $ 400 more than at the beginning of the year. It responds, he says, to an upturn in demand and to the speculation that occurs in the New York stock exchanges, thereby generating a higher price. Although these are days of difficult supply, Carvajal recognizes that this increase is positive, especially for the farmer who nowadays can sell up to $ 100 per quintal, well above the $ 70 that he receives when the market is depressed.

The arrival of multinationals in the country in search of raw materials and the progressive increase of local exporters seeking to meet global demand has been injecting greater competitiveness to this market in recent years, explains Pedro Martinetti, who with his company markets the harvest of less than 3,000 producers of Quevedo (Los Ríos). “Nowadays, the Ecuadorian farmer who sells to the exporter is receiving the highest prices, compared to other countries,” he says. Other factors are added to this, such as the absence of an official price that, unlike other sectors such as banana, allows them to have higher incomes in buoyant times or that here in Ecuador high taxes are not paid for marketing. “Something that does happen in other African countries, those with higher production. In Côte d’Ivoire, for example, between 25 and 30% of the cost of cocoa, the State takes it, “he says.

Francisco Miranda, president of the National Association of Exporters of Cacao and Industrialized of Ecuador (Anecacao), admits that the market experiences a recovery, after the resounding fall of external prices suffered in 2016, however remember that it is still far away to reach $ 3,000 and more than before that year they received. Achieving it, he says, will be difficult, because there is still the ravages of global overproduction that almost leads the sector to crisis.

The panorama satisfies the producer, but it is leading all the actors in the production chain to think about options that help protect the industry from certain threats.

Carvajal argues that the sector should not settle for a momentary wave of good prices, but think of a plan that leads it to change the weak marketing scheme that it currently has.

The global expansion of the transnationals (6 within Ecuadorian territory) is positive, but it also has its risks, they say. The medium-term goal of these companies (some already operate like this), will enter the field to get cheap raw material, and that, says Carvajal, could displace the presence of exporters and other intermediaries and with it the competition that today allows farmers (92% small) have the option of receiving higher incomes.

Therefore, they argue that the government should regulate the scenario on which foreign companies are operating. Not doing it, is to subject the market to an ‘Africanization’, says Carvajal, referring to the precarious condition in which the sector could fall.

In this Miranda agrees. It is enough to see the history, he says, of how the multinationals were entering this continent without control and how they came to lead the export in these countries, paying low prices to the farmers.

These firms, they argue, should be required to process the grain locally so that 50% of what they send to the world is an industrialized product. That would strengthen the production chain, generate greater profits for the country and encourage the creation of more jobs.

In this sector we think about the promising future that opens with the commercialization of derivatives or industrialized products. Martinetti tells how Asian countries (with China, India, Malaysia and Indonesia in the lead), are demanding more cocoa to extract the butter that serves not only to make chocolate, but chemical-pharmaceutical and cosmetic products.

That tendency, he says, is what forced him to modify his shipping strategy. Three years ago, 100% of the 8,000 tons it exports was sent to Europe. Last year, 30% already started to rise to Asian markets; for this year, he believes that this percentage will rise to 60%.

If demand for these derivatives continues to increase, he says, and Ecuador knows how to take advantage of the trend, the sector will have secured more years of sustainability.

A new variety promises better rents

The strong global competition in the cocoa offer leads some producers to think that the country should continue testing new varieties of plants that complement the current ones (fine aroma cacao and CCN51) but that allows them to be more productive and efficient.

They give as an example the 800 variety that recently created the National Institute of Agricultural Research (Iniap), which can yield up to 3 tons per hectare, versus the 2 that are now available with CCN51. And not only that, explains the businessman José Carvajal, who has already started to plant this new species in the lands of Santa Elena, the 800 variety is also characterized by having a better flavor and aroma, two characteristics that are currently lacking in the country and that keep it in fourth place in the world supply ranking. (I)

Source:  https://www.expreso.ec/economia/africanizacion-riesgo-mercado-cacaotero-MY2760187