Speaker 1: From Bloomberg News. I'm Jennifer's Abisaga and this is the
Speaker 1: very first episode of the Next Africa Podcast, your weekly
Speaker 1: dive into business stories from across the continent. I am
Speaker 1: really excited to bring you this brand new podcast from money,
Speaker 1: politics and economy, to technology and even fashion and sports.
Speaker 1: Each week with one Bloomberg reporter or multiple, we're going
Speaker 1: to be lifting the lid on the news driving Africa.
Speaker 1: For our first episode, we're going to be talking about
Speaker 1: one of my favorite topics and indulgences chocolate. Okay, delectly
Speaker 1: doing chocolates and carols like creamy chocolate. Who is that
Speaker 1: is enough?
Speaker 2: Good Year? Anyone out a tast sensation rich, luxurious, unique.
Speaker 1: You're assessably smooth chocolate put the world on pause. It's
Speaker 1: hard to find someone who is not a fan of chocolate.
Speaker 1: We all love it in so many different forms, from
Speaker 1: kit Kats to Mars or Cadburry, take your pick. But
Speaker 1: everywhere we go, companies are increasing the cost of your
Speaker 1: favorite chocolate bars and products. But what's the reason behind
Speaker 1: it and what does it mean for the overall industry.
Speaker 1: That's something we are going to talk about today on
Speaker 1: the podcast with momby guitar. Hey, moobooy, how are you?
Speaker 3: I'm good.
Speaker 1: Hi. You are the best positioned person I think in
Speaker 1: our newsroom to be speaking about this, because you're our
Speaker 1: soft commodities reporter. Are you just eating all day?
Speaker 3: I am not eating all day volvos. I don't think
Speaker 3: i'd be standing here.
Speaker 1: You know. We brought you on because what we've been
Speaker 1: covering across Bloomberg platforms for the past few weeks is
Speaker 1: just the skyrocketing price of Coco right now. I just
Speaker 1: saw a banner that said logo for Coco. I feel
Speaker 1: like everybody is logo for Coco right now because now
Speaker 1: it's more expensor the likes of copper. Coco has exceeded
Speaker 1: nine thousand dollars for the first time ever as global
Speaker 1: supplies order just grip the market. Why are you stop
Speaker 1: piling chocolate? Do you really think that it's going to
Speaker 1: get that much worse out there? Are you surprised by
Speaker 1: what we're saying?
Speaker 3: No, I'm not surprised. And it almost feels like everywhere
Speaker 3: I turn in this newsroom, everyone is asking me what's
Speaker 3: happening to the price of Coco? But it's was expected.
Speaker 3: Everyone you speak to the trader say we were going
Speaker 3: to get here. But it's also fascinating the pace at
Speaker 3: t Whitich we've gotten here. In just a span of
Speaker 3: three months, prices have doubled. We started the year at
Speaker 3: four thousand dollars a ton. It's a vertical rise. It
Speaker 3: almost looks like a rocket launch. I think that's been
Speaker 3: the most fascinating thing about the ratley in the cocoa market.
Speaker 1: Let's just take a step back and try to contextualize
Speaker 1: how we got here. As somebody who's been watching these
Speaker 1: commodities for quite a while, where should we start.
Speaker 3: We should start from West Africa. So in West Africa
Speaker 3: we have every coast and Ghana. They are the biggest
Speaker 3: producers of coco, and just West Africa alone accounts for
Speaker 3: seventy five percent of global production of coco. So without
Speaker 3: West Africa, we would basically not have coco or chocolate
Speaker 3: in the world. The rest comes from Latin America, so
Speaker 3: that accounts for about twenty five percent. And I was
Speaker 3: in West Africa about three months ago. I think we
Speaker 3: had started to see that there's a problem there, and
Speaker 3: back then prices were not shooting as much as they
Speaker 3: are right now, and as they went through the fields.
Speaker 3: You could see fields that were flooded, that's because of rains.
Speaker 3: You could see sick trees. We went to a farm
Speaker 3: where half the plantation had sick trees that were infected
Speaker 3: with either black pod or stall enshoot. So it's just
Speaker 3: a perfect storm of things. We've had climate change, you
Speaker 3: have diseases, and then the top that is farmers have
Speaker 3: been paid poorly for the last forty years, and so
Speaker 3: if you're not well paid, you don't invest back into
Speaker 3: your farm. And we've had high inflation in the last
Speaker 3: two years, so farmers have not been able to afford
Speaker 3: fertilizers chemicals to tackle diseases. As you can imagine, lack
Speaker 3: of investment on anything means that investment will not succeed.
Speaker 3: So it's the lack of pay for farmers, diseases, climate
Speaker 3: change just the perfect storm that the cocoa market needed
Speaker 3: for us to have a deficit.
Speaker 1: Is this a uniquely West African problem or is it
Speaker 1: something that we are seeing in other parts of the world.
Speaker 3: It's a uniquely West African problem because West Africa has
Speaker 3: been the sole producer of cocoa, so they have many
Speaker 3: trees and the problem is that some of those trees
Speaker 3: are aging. As you know, as you get older, you
Speaker 3: become less bread active, and so is that tree, even
Speaker 3: cocoa tree. As the longer it takes it's in the farm,
Speaker 3: the less productive it gets. So in Latin America we're
Speaker 3: having them plant more neu trees. We have new plantations there,
Speaker 3: so they're a bit more productive. I'd call them useful trees,
Speaker 3: whereas in West Africa we have old trees. Because of that,
Speaker 3: West Africa's production is falling and now the world is
Speaker 3: going to have a third day of deficit. What that
Speaker 3: means is that we're consuming more chocolate than we are
Speaker 3: producing coco.
Speaker 1: I mean it is eating less chocolate. Really the solution
Speaker 1: here for consumers.
Speaker 3: I don't know if you're like me, but every time
Speaker 3: I go to the supermarket and I go to the
Speaker 3: chocolate aisle, I cover the market so I know what's coming,
Speaker 3: I know why price is arising. But when I look
Speaker 3: at that cost, I'm thinking to myself, do I buy carrots,
Speaker 3: do I buy chocolate?
Speaker 1: And what to do?
Speaker 3: I'm assuming chocolate chocolate, But then the next day I'll
Speaker 3: take carrots, which is much cheaper, so I'm having to
Speaker 3: trade off and so that's a choice that consumers will
Speaker 3: have to make. Companies will still have to buy Coco
Speaker 3: to meet their products and to be able to supply
Speaker 3: their consumers with their favorite chocolates. And I don't think
Speaker 3: there's a way around it, as these costs will have
Speaker 3: to be passed on to consumers. And we had the
Speaker 3: Mondolist chairman and CEO speak on Bloomback TV the other
Speaker 3: day about this.
Speaker 2: Our input costs keeps from going up. Some are flats
Speaker 2: are coming down, but Coco, sugar in fact also and
Speaker 2: hazelnuts are the ones that are going quite high, and
Speaker 2: they're important in our products. So we unfortunately have to
Speaker 2: increase prices.
Speaker 1: Again.
Speaker 3: They say the QRE four high prices is high prices,
Speaker 3: and you have to come to a point where these
Speaker 3: high prices bring down demand significantly that prices come down,
Speaker 3: so it will be less demand that will bring prices
Speaker 3: back to the point of equilibrium. Otherwise, if we continue
Speaker 3: to eat more chocolate, then prices continue to go up.
Speaker 1: So maybe is this going to start eroding the bottom
Speaker 1: line of some of these companies to the point where
Speaker 1: they may even start rethinking how much exposure their portfolios
Speaker 1: actually have to chocolate.
Speaker 3: What the companies are trying to do fast is to
Speaker 3: cut production costs. We've seen companies that have started laying
Speaker 3: off some of their stuff that they think they can
Speaker 3: do without because they're automating more. We've seen companies consider
Speaker 3: closures or factories that they think are too expensive to run,
Speaker 3: either because they've been there for too long and therefore
Speaker 3: running them is a lot more expensive, so they'll consider
Speaker 3: cutting production costs to where they can, and then in
Speaker 3: the long run, they will try and push products that
Speaker 3: have less cocoa in them, or try and push products
Speaker 3: that do not cut into their bottom line to make
Speaker 3: sure that they are still running. Some of these companies
Speaker 3: don't just thrive on cocoa alone or on chocolate. They
Speaker 3: have other products on their portfolio, so they might try
Speaker 3: to push consumers to buy those cheaper products as they
Speaker 3: wait for cocoa prices to come down. That's if they
Speaker 3: will ever come down to levels that we've seen before.
Speaker 1: Well, and membe that's on the end of the supply chain.
Speaker 1: Let's just start at the beginning with the actual cocoa farmers.
Speaker 1: How is this all affecting them? Because you mentioned this
Speaker 1: has been slow and steady getting to this point. But
Speaker 1: where are they at right now?
Speaker 3: I think farmers are looking at the rally, or they're
Speaker 3: probably hearing about the rally in the prices and they're wondering,
Speaker 3: when are we going to greap benefits of this. So
Speaker 3: farmers in Cameroon, in Nigeria, in other parts of the
Speaker 3: world that are more liberalized are realizing the benefits of
Speaker 3: this rally. But farmers in Ivory Coast and Garner the
Speaker 3: prices their asset by the government and they usually set
Speaker 3: anyar in advance, so that means they've not seen the
Speaker 3: benefits of this rally. Hearing that, there's more pressure on
Speaker 3: the government to make sure that they start to push
Speaker 3: on these prices to the farmers, that the prices for
Speaker 3: farmers are raised. If they don't do that, then we
Speaker 3: won't have more cocor growing in the farm. So it's
Speaker 3: I think in the government's interests to make sure that
Speaker 3: farmers are well remunerated and that this rally that is
Speaker 3: meant to benefit the farmers does actually benefit the farmers.
Speaker 1: Are we seeing any of the governments really take some
Speaker 1: serious measures into consideration here to help with that.
Speaker 3: It's not clear right now, because as I said, every
Speaker 3: constant gunners sell forward, so they've already reached agreements with
Speaker 3: exporters for this season and yeah, da advance, so there's
Speaker 3: little wig room for them in this season, but they
Speaker 3: can do that in the next season as they sell
Speaker 3: forward for the next crop. So we might see more
Speaker 3: changes maybe starting October when this is on starts, but
Speaker 3: between now and October there's very little will go room
Speaker 3: for the governments to work around.
Speaker 1: Is there a risk of maybe doing too much, especially
Speaker 1: because we don't really know where the price of cocoa
Speaker 1: is going or is this needed for the farms across
Speaker 1: Ivory Coast and Ghana.
Speaker 3: I wouldn't say there's a risk of doing too much,
Speaker 3: as not much has been done. So if you look
Speaker 3: at the where the price is, farmer is earning less
Speaker 3: than a sixth of where the price is, so there's
Speaker 3: still room for us to close the gap between what
Speaker 3: the price on the futures market is and what the
Speaker 3: farmer gets. So I think that is where the industry
Speaker 3: wants to get at and this was probably going to come.
Speaker 3: I think there's just a lot that has been happening
Speaker 3: for the sector and this is the point where they
Speaker 3: have to realize that farmers need the money to grow
Speaker 3: more and unless they're well remunerated, then you won't be
Speaker 3: getting the cocoa, and then that's going to increase the
Speaker 3: cost for you and you may probably lose your consumers.
Speaker 1: So this is just one of the many challenges as
Speaker 1: you mentioned that farmers are facing. I mean, what else
Speaker 1: is sort of hitting the industry right now that is
Speaker 1: having a significant impact on what's happening on the ground
Speaker 1: at some of these farms.
Speaker 3: I think the biggest one, apart from prices that is
Speaker 3: keeping them awake, is what we call the EUDR, that's
Speaker 3: European Deforestation Law. That law is going to change how
Speaker 3: the coco market works, particularly in Europe. That law will
Speaker 3: require every farmer, I mean, every trader, every important of coco,
Speaker 3: whoever brings coco into the European Union to show that
Speaker 3: that coco was not grown on deforested land. Now that's
Speaker 3: a big ask for an important If you bring iner shipment,
Speaker 3: you have to show that it was not grown on
Speaker 3: land that was recently deforested. What does that mean? They
Speaker 3: have to have the GPS coordinates of every farm where
Speaker 3: they source their cocoa. That's additional costs because these company
Speaker 3: is from Cargill to e Comm to Teuton. All these
Speaker 3: companies need to have boots on the ground and map
Speaker 3: every farmer and make sure that that farmer is not
Speaker 3: enforested land. So apart from the rising coco prices, they
Speaker 3: have a regulation that will be implemented at the end
Speaker 3: of this year that they have to follow that they
Speaker 3: have to add THEA too, So most companies are concerned
Speaker 3: us about cocoa prices, but they're also looking at the timeline.
Speaker 3: They have to comply with the EUDR and make sure
Speaker 3: that by December twenty ninth of December thirtieth that they
Speaker 3: are able to trace every coco that they bring into
Speaker 3: the EU.
Speaker 1: How does that even work? I mean in rural parts
Speaker 1: of Africa, I mean, how are you going to have
Speaker 1: the coordinates and some of these details that the EU
Speaker 1: is looking for.
Speaker 3: First of all, the supply chain is just so complex.
Speaker 3: The farmer and the trader, they're all like six intermediaries
Speaker 3: between them, and so that coco is just constantly switching hands.
Speaker 3: And then how are you going to tell a farmer
Speaker 3: to map their land? They probably do not own a smartphone,
Speaker 3: so it's going to be really the bad end of
Speaker 3: the importer to do that. And trust me, if they
Speaker 3: have to take on more costs, there is no way
Speaker 3: they're going to absorb it into their own bottom line.
Speaker 3: They'll probably make sure that the consumer pays for that,
Speaker 3: but it's a huge ask for importers. Coco has been
Speaker 3: blamed for driving deforestation in every cost and in Ghana.
Speaker 3: To make sure that that doesn't happen. They want to
Speaker 3: make sure that importers take responsibility of where the coco
Speaker 3: is coming from.
Speaker 1: And maybe just getting back to cocoa and what we've
Speaker 1: seen over the past three months, when we think about
Speaker 1: the end of the year, can you use your crystal
Speaker 1: ball and give us your ideas or your outloock for
Speaker 1: what you think, because there's some analysts who we've been
Speaker 1: speaking to who think that we could see a crash soon.
Speaker 1: What do you think? What's the trajectory here?
Speaker 3: I wish I had the crystal ball to begin with,
Speaker 3: but just looking at the market fundamentals, it's unlikely we'll
Speaker 3: get a supply response to see production come out of nowhere.
Speaker 3: It takes four or five years for a cockol tree
Speaker 3: to start producing, So even if farmers went to the
Speaker 3: field and planted coco right now, we won't see those
Speaker 3: pods until after three to four years. That's when we'll
Speaker 3: see that production. Prices may correct, they may come down
Speaker 3: from the level we're seeing right now, but they won't
Speaker 3: go back to the levels that we saw a year
Speaker 3: ago or two years ago. Prices will still remain high
Speaker 3: because it's about balancing supply and demand. We are heading
Speaker 3: into the third year of deficit. Supply response will not
Speaker 3: be there, so it's just a matter of finding that equilibrium,
Speaker 3: and that equilibrium will still be higher prices, so consumers
Speaker 3: have to get used to higher prices until when we
Speaker 3: see the supply response from this kind trees, which is
Speaker 3: not this year, not next year. So there's no relief
Speaker 3: insight for now.
Speaker 1: So Mumbi, it's the future of what's really happening right now.
Speaker 1: Are we heading to a state where it's going to
Speaker 1: be a luxury, will be a luxury for kids to
Speaker 1: eat chocolate down the road?
Speaker 3: Yes, but I think Europe, which is the largest consumer
Speaker 3: of chocolate, will probably still consider it an essential item.
Speaker 3: But for other parts of the world, maybe Asia or Africa,
Speaker 3: that will remain a luxury. As we see these increases,
Speaker 3: it will be out of reach for other people, maybe
Speaker 3: in middle income areas, probably in the developing countries, but
Speaker 3: I think for developed countries like Europe and the US,
Speaker 3: chocolate will still be a nice street to have every
Speaker 3: weekend of every once in a while.
Speaker 1: All Right, thank you so much Mumby for this insight
Speaker 1: into the cocoa industry and also all the soft commodities
Speaker 1: that you're covering day and day out. We reallyppreciate having
Speaker 1: you on the first pod. I think the big takeaway
Speaker 1: here is that there's real challenges across the board in
Speaker 1: the industry. It's really hitting farmers on the ground. Farmers
Speaker 1: need the support, the financial support to be trickling to
Speaker 1: their pockets in order to help support a lot of
Speaker 1: the disease and the decay that we've been seeing on
Speaker 1: a lot of these farms for the past few years.
Speaker 1: But that needs to come in the form of government
Speaker 1: stepping in to help with some of this regulation and
Speaker 1: hopefully then the higher prices will at least even themselves out,
Speaker 1: although I think some of us hope that they'll come
Speaker 1: down a bit, so we'll have to wait and see
Speaker 1: how that pans out, and also how the EU regulation
Speaker 1: around deforestation really affects the industry more broadly, and whether
Speaker 1: we're going to see some of these big chocolate makers,
Speaker 1: these big companies taking a hit. But for me at
Speaker 1: this time, I think I'm just going to focus on
Speaker 1: stocking up on as much chocolate as I can while
Speaker 1: the prices stay where they are. This program was produced
Speaker 1: by Christopher Pitt and Leone Drago and you can hear
Speaker 1: more stories like this one on the Next Africa podcast,
Speaker 1: available every week wherever you usually get your podcasts. I'm
Speaker 1: Jennifer Zabisagia. Thanks so much for listening. We'll see you
Speaker 1: next time.