Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: The cocoa price route continues, leaving African farmers worried.
Speaker 1: This has never ever happened in the history of this country.
Speaker 2: Why are we totrik coco farmers this week? Why while
Speaker 2: weather conditions for coco farming looks good, the falling prices
Speaker 2: could mean less income for farmers and prompt policy adjustments
Speaker 2: by regulators.
Speaker 1: The fumer warfare is on the haunts of every position.
Speaker 2: That's the management teach. On today's podcast, we'll look at
Speaker 2: the state of the coco market and how after years
Speaker 2: of sky high prices, the falling market is causing new
Speaker 2: problems for the world's largest cocoa producing countries. I'm Jennifer's
Speaker 2: Abasaga and this is the Next Africa podcast, bringing you
Speaker 2: one story each week from the continent, driving the future
Speaker 2: of global growth with the context only Bloomberg can provide.
Speaker 2: Joining me today is Bloomberg Soft Commodities reporter Mumbi guitar Mumby.
Speaker 2: Always great to have you back on the podcast. Thanks
Speaker 2: for joining us, so Mumbi. When we have had you
Speaker 2: on the podcast before, we have talked about the sky
Speaker 2: high cocoa prices Fortunately, I've spoken to you since then,
Speaker 2: but here's how we ended that last discussion on the podcast.
Speaker 1: The price is really dictated by both elements, supply and demand.
Speaker 1: So we'll continue to focus on how much production is
Speaker 1: coming out of africost and Ghana and how much chocolate
Speaker 1: companies are able to still continue producing chocolate at these
Speaker 1: really high levels.
Speaker 2: And so now shockingly we're seeing prices going in the
Speaker 2: complete opposite direction. Quite a roller coaster of volatility that
Speaker 2: we've been witnessing with coco. Talk us through what's happened
Speaker 2: from your vantage point.
Speaker 1: You're right, Jen, it's been such a roller cost we've
Speaker 1: pretty much wiped out the rally of twenty twenty five
Speaker 1: and twenty twenty four, and now we are back to
Speaker 1: the levels that we saw in twenty twenty three. I
Speaker 1: guess what they say about higher prices curing higher prices
Speaker 1: is true, because we've seen a lot of demand distraction.
Speaker 1: What happened is that as chocolate t is passed on
Speaker 1: the higher cost consumers that are cutting back on their
Speaker 1: consumption of chocolate. At the same time, the manufacturers also
Speaker 1: cut back on their use of coco because they wanted
Speaker 1: to protect their bottom line. They wanted to protect their
Speaker 1: imagin so they've ended up using less coco in their products.
Speaker 1: I'm sure you've seen your chocolate bards have gotten smaller.
Speaker 1: Other manufacturers have opted to remove the chocolate in their
Speaker 1: branding and now they're just saying it's chocolate tea. All
Speaker 1: this is taking away demand from coco. That's industrial demand
Speaker 1: and consumer demand. And when you have higher prices, to
Speaker 1: bring back demand, you need to have lower prices, and
Speaker 1: that's what's causing the price correction that we are seeing
Speaker 1: in the market right now.
Speaker 2: Yeah, chocolate EA as a description is quite interesting for
Speaker 2: a consumer and also I'm sure for manufacturers to adjust to.
Speaker 2: But if we talk about what's happened with the climate,
Speaker 2: We've spoken to you about a few bad years of
Speaker 2: bad weather, but it seems like growing conditions have actually
Speaker 2: improved this year. Will that be enough to turn the
Speaker 2: tide for farmers and for them to be able to
Speaker 2: capitalize on this moment?
Speaker 1: I mean, it's been a series of bad weather and
Speaker 1: now they are having good weather. That's good in the
Speaker 1: grand scheme of things, that they'll have a much better crop. However,
Speaker 1: when prices are falling this first, it's hard for the
Speaker 1: farmers to capitalize. Production is not expected to recover that much.
Speaker 1: Just because we've had good weather doesn't take away from
Speaker 1: the diseases that are currently ravaging farms in West Africa.
Speaker 1: It doesn't take away from the lack of investments that
Speaker 1: has happened in the last few decades. So there's still
Speaker 1: structural issues that continue to affect farmers. Well. The weather
Speaker 1: is good right now, but some of the aspects that
Speaker 1: are more structural, like diseases and under investments still remain.
Speaker 1: They might collect a decent crop if prices do not recover.
Speaker 1: If prices continue falling, then you don't get as much
Speaker 1: from the crop that you have.
Speaker 2: Is sting, which is probably why we're seeing some of
Speaker 2: the West African producers resulting to new measures to adjust.
Speaker 2: Can you speak to what's been happening in Ghana and
Speaker 2: also top grower Ivory Coast as they adjust to the
Speaker 2: falling cocoa price.
Speaker 1: Now, I Recosts and Ghana really find themselves in a
Speaker 1: very difficult place when the market was rallying. We've spoken
Speaker 1: about this previously. They have a pricing mechanism in which
Speaker 1: they set firm gate prices and those prices are locked
Speaker 1: in for maybe six months or three months now when
Speaker 1: the prices were rallying, they could not immediately help farmers
Speaker 1: capitalize on those prices. Now, just when they had started
Speaker 1: raising firm gate prices, prices on the futures market have collapsed.
Speaker 1: Now ivery coasts and Ghana have farm gate prices that
Speaker 1: are above the market price in the world. How do
Speaker 1: you sustain price is that are well above what other
Speaker 1: regions are being paid for. That's what's put them in
Speaker 1: a really difficult place because exporters are saying, how do
Speaker 1: we buy coco from you at five thousand dollars when
Speaker 1: the market outside is three thousand dollars. It doesn't make
Speaker 1: sense for us. Those margins will really be squeezed. And
Speaker 1: now we've seen coco piling up in every court. We've
Speaker 1: seen coco piling up in Ghana. And that's where now
Speaker 1: the regulators are going back to the drawing board and
Speaker 1: asking themselves difficult questions. Do we need to keep this
Speaker 1: pricing mechanism where we lock in prices months in advance
Speaker 1: without any insight on what happens to the market. They
Speaker 1: did not anticipate this correction in prices. No one anticipated
Speaker 1: that prices would fall this far this first and now
Speaker 1: you need to reconcile what farmers are being paid and
Speaker 1: what the market price is in the world market.
Speaker 2: And Mambi just hold that thought. I want to dig
Speaker 2: into that more. We're going to take a quick break
Speaker 2: and when we come back, we'll look at what the
Speaker 2: long term future for cocoa production could be like, especially
Speaker 2: when it comes to the farmers. As you just brought up.
Speaker 2: We'll be right back. Welcome back. Today we're looking into
Speaker 2: cocoa and how West African production is adapting to cheaper
Speaker 2: market prices. Our soft commodities reporter Mumbi Guitau is still
Speaker 2: with us, so Mumbe. Just before the break, we were
Speaker 2: talking about the adjustments and the shifts that we're seeing
Speaker 2: Ghana and Ivory Coast, talking about considering the volatility in
Speaker 2: the market when we talk about the farm gate price,
Speaker 2: were the farmers ever able to capitalize on some of
Speaker 2: the higher prices when they were at their peak.
Speaker 1: Only regions where the markets are liberalized, like Cameroon, Nigeria,
Speaker 1: Brazil Ecuadora able to capture the high prices. Farmers in
Speaker 1: Ivery Coast in Ghana did not capture those high prices. Yes,
Speaker 1: the regular late has raised prices in the last few
Speaker 1: months and in the last few seasons, but that has
Speaker 1: not completely translated to them capturing the whole rally. At
Speaker 1: some point last year or in twenty twenty four, we
Speaker 1: had prices reached twelve thousand dollars a ton. The highest
Speaker 1: farm gate price that every cost and Ghana have gotten
Speaker 1: to is about five five hundred dollars a ton, So
Speaker 1: there's still a lot that they were not able to
Speaker 1: capture when the market was really high.
Speaker 2: Which is quite unfortunate, especially when you think about some
Speaker 2: of these contracts that were not able to be fulfilled
Speaker 2: for some of the farmers. Potentially that's the reason why
Speaker 2: we're seeing some of the reaction. I mean, how do
Speaker 2: you interpret it, Mumby.
Speaker 1: It's such a lossful farmers in every coast and Ghana.
Speaker 1: They missed out when the prices were rallying, and now
Speaker 1: they're going to even suffer as prices are falling. As
Speaker 1: you've painted the picture in every coast, farmers are sitting
Speaker 1: on cocor that no one wants to buy. And as
Speaker 1: for reasons I explained earlier, wouldn't exporter pay much more
Speaker 1: in a market where you're not guaranteed to be receiving
Speaker 1: as much from your buyers. And I think now farmers
Speaker 1: are looking at a situation where they are stuck. They
Speaker 1: are left in a situation where they don't benefit regardless
Speaker 1: of whichever direction the market moves, whether in their favor
Speaker 1: or against their favor, They're still very stark in a
Speaker 1: bad situation.
Speaker 2: What do you make, Mumbi of what the authorities have
Speaker 2: been saying about the latest prices?
Speaker 1: You really sit and you feel for the authorities because
Speaker 1: they are stuck to a traditional model that worked for
Speaker 1: them when the market was not volatile, when the market
Speaker 1: barely moved fifty dollars a day. Now we have a
Speaker 1: market that's moving five hundred dollars two hundred dollars a day.
Speaker 1: So in a market where the market was more predictable,
Speaker 1: that model makes sense. Now it's becoming harder for them
Speaker 1: to defend this model in such volatile times. When you
Speaker 1: set up price in October only for it to now
Speaker 1: be changed again in March, how do you stand by
Speaker 1: that position when between October and match the futures market
Speaker 1: is moving wild. When we started the season we were
Speaker 1: at seven five hundred. Right now we are just in
Speaker 1: the middle of the season and we are at three thousand.
Speaker 1: Farm gate prices haven't moved an inch during that period,
Speaker 1: apart from Ghana, which recently cut its firm geit price.
Speaker 1: So when I look at the authorities, I just keep
Speaker 1: asking myself, how do you continue to defend a policy
Speaker 1: that is not working for you and for the farmers
Speaker 1: that you're there.
Speaker 2: To protect sure and especially if this is a moment
Speaker 2: that they haven't been faced with before, Right, Mambia, is
Speaker 2: this something once in a generation shift that we're seeing?
Speaker 2: Will this potentially set the precedent for the future our
Speaker 2: soft commodities? As a soft commodity reporter, are you used
Speaker 2: to this type of volatility and the up and down?
Speaker 2: I mean, what do you think this moment maybe symbolizes?
Speaker 2: Considering some of those characterizations you just mentioned.
Speaker 1: I think for being in the market, we are very
Speaker 1: used to saying un chartered territories, unprecedented times. But these
Speaker 1: for most veterans that I have spoken to, people that
Speaker 1: have been in the market for forty years say they
Speaker 1: have never seen anything like this. The volatility in the
Speaker 1: market is like anything they have ever seen, where the
Speaker 1: market is moving wild So This has really introduced traders, regulators, farmers,
Speaker 1: manufacturers into a very new area that they don't have
Speaker 1: experience in. Everyone is just trying to learn as they go,
Speaker 1: and it's hard to say whether this will be the
Speaker 1: market for the foreseeable futures. I think demand is still
Speaker 1: a big question. Does industrial demand come back that these
Speaker 1: prices are falling back? Do consumers come back and buy
Speaker 1: a lot more chocolate? Do regulators change the way they function?
Speaker 1: Ghana has said they will just domestic prices depending on
Speaker 1: what happens in the futures market. Is that going to
Speaker 1: be the way forward. If we start to see these
Speaker 1: structural changes stick, then volatility is going to be the
Speaker 1: name of the game going forward.
Speaker 2: And let's just finish then on demand. Will consumers see
Speaker 2: this in the short term? Will mumbeego to the store
Speaker 2: and start to see falling prices? I mean, when does
Speaker 2: this hit the reality the day to day for people
Speaker 2: and consumers. Who these manufacturers and producers really need to
Speaker 2: turn the tide.
Speaker 1: That's a big question, But at least in the short term,
Speaker 1: it takes time. There's usually between a six months to
Speaker 1: twelve months lag effect, just because prices are falling on
Speaker 1: the terminal market doesn't mean that prices for the consumers
Speaker 1: will fall immediately. We didn't see the same price in
Speaker 1: chocolate prices when futures were rising because right now manufacturers
Speaker 1: are still walking through stock piles that were bought at
Speaker 1: six thousand, seven thousand levels. No, we may not see
Speaker 1: short term relief, but as we go to us the
Speaker 1: end of the year, we might see more promotions, we
Speaker 1: might see a bit more discount. But for now, we've
Speaker 1: just stuck with expensive chocolate until manufacturers start to input
Speaker 1: chipper coco in their supplies.
Speaker 2: Mumby, thanks again, we always love having it on the podcast.
Speaker 2: That's Bloomberg's Soft Commodities reporter Mumbi Katan. Here's some of
Speaker 2: the other stories we've been following across the region this week.
Speaker 2: Kenya's Central Bank still has room to cut its benchmark
Speaker 2: interest rate after lowering it ten times in the past
Speaker 2: one and a half years to help spur economic growth.
Speaker 2: That's according to Governor Kama Fugi. A stable currency, but
Speaker 2: nine oil prices and a forecast of abundant rains will
Speaker 2: help the Central Bank of East Africa's biggest economy maintain
Speaker 2: its accommodative policy and Butswana's inflation will peak at just
Speaker 2: over five percent this year, down from a December forecast
Speaker 2: of six point two percent, due to quote stabilizing exchange
Speaker 2: rate dynamics. That's according to the Bank of Botswana Governor
Speaker 2: the Sego Museki. And you can follow these stories across Bloomberg,
Speaker 2: including the Next African Newsletter, will of course put a
Speaker 2: link to that in the show notes. This program was
Speaker 2: produced by Adrian Bradley and tiba Adebayo. Don't forget to
Speaker 2: follow and review the show wherever you usually get your podcasts,
Speaker 2: But for now I'm Jennifer's Apostaja. Thanks as always for listening.