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Nigeria’s plans for the OPEC of cocoa unlikely to bear fruit

By David Whitehouse
Posted on Thursday, 17 October 2019 10:43

Unlike with commodities such as metals, any country with the right climate can grow cocoa. © Philippe Guionie/Myop for J.A.

For Nigeria to fix cocoa prices with Cameroon it would first need to deliberalise its cocoa sector.

World Cocoa Producers Organisation vice-president Sayina Riman has said that Nigerian private sector representatives will hold talks with their government this month, after which Nigeria plans discussions with Cameroon. The initiative follows an agreement between Ghana and Côte d’Ivoire in June to set a joint cocoa price floor of $2,600 per tonne.

Any agreement between Nigeria and Cameroon is unlikely to work, argues Benedict Craven, Middle East and Africa economist at The Economist Intelligence Unit (EIU) in London. Nigeria does not have agricultural marketing boards in the same way as other West African nations, which Craven sees as a legacy of the IMF’s structural adjustment programme in the late 1980s.

  • “Without such regulation it seems impossible that Nigeria could enforce any agreement it made with Cameroon,” Craven says.
  • Such an accord would simply be an “empty gesture”. If prices rise, independent producers will simply undercut them, he says.

Nigeria and Cameroon each account for around 10% of global cocoa production. Riman says the two countries have the potential to more than double output in five years. Cameroon’s trade ministry told Reuters that it was unaware of the Nigerian plans.

Marketing boards

As argued in The Africa Report in August, it would difficult for Côte d’Ivoire and Ghana to withhold cocoa from the market for any length of time to enforce their price since cold storage and warehouse facilities are insufficient. The EIU believes that an agreement between the two countries to fix a minimum price of $2,600/tonne for 2020/21 crop sales will be difficult to implement.

  • The re-establishment of marketing boards in Nigeria could make the idea more feasible, Craven says.
  • Such a move  “may actually appeal to the Buhari administration’s statist predisposition. But it can’t feasibly be done for the 2020/21 marketing season.”

The British colonial government established marketing boards in Nigeria, setting up the Cocoa Marketing Board in 1947. In 1986, Nigeria dropped the model and became the first African country to liberalise the cocoa trade. By the end of the 1990s, virtually all marketing boards in Africa had been either partly or fully privatised.

If a region-wide agreement were finally implemented, Craven says, it would include four out of five of the world’s largest producers, accounting for 70% of global supply. That would mean “a bona fide commodity cartel, like the OPEC of chocolate”.

Even then, a West African cartel would likely become a victim of its own success.

  • Unlike other commodities such as oil or metals, which you either have or you don’t, any country with a suitable climate could adapt to cocoa production, Craven says.
  • “Buyers would be very keen to help other producers along, and if the market configuration shifts away from West Africa that could be permanent.”

Bottom line:

Higher produce standards and increased value added are more likely than cartels to achieve better cocoa prices for West African producers.

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