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Ghana, Côte d Ivoire and Nigeria: The changing face of West African cocoa Dr Edward George Head of Group Research, Ecobank Lagos, February 3rd 2016
West African output is set to fall in 2015/16 Cyclical downturn in Côte d Ivoire will offset Ghana rebound West African cocoa production, 000s tonnes Share of world cocoa production, 2010-14 2,000 1,750 1,500 1,250 1,000 750 500 250 0 2012/13 2013/14 2014/15 2015/16 5% 5% 6% 5% 10% 10% 21% 38% Côte d Ivoire Ghana Indonesia Cameroon Nigeria Ecuador Brazil Others Côte d Ivoire Ghana Nigeria Cameroon After a record crop in 2014/15, West Africa s output is set to fall by 3.4%, to 2.8mn tonnes. Côte d Ivoire will lead the fall, while Ghana will regain ground lost in 2014/15. Nigeria & Cameroon will struggle to boost output, remaining bit players for now. Sources: ICCO, Ecobank Research. 3
Côte d Ivoire: third successive record crop is unlikely High prices & new trees entering production will constrain any fall Côte d Ivoire cocoa production, 000s tonnes 1,200 1,000 800 600 400 200 - Main crop Mid-crop Main crop Mid-crop Main crop Mid-crop Main crop Mid-crop Main crop Mid-crop 2011/12 2012/13 2013/14 2014/15 2015/16 Côte d Ivoire produced a record crop of 1.77mn MT in 2014/15. But erratic weather, cyclical downturn and impact of El Niño are expected to cut the crop by 100,000-150,000 MT in 2015/16, producing a total crop of around 1.65mn MT. Sources: ICCO, Ecobank Research. 4
Ghana is expecting a rebound in 2015/16 But the root causes of last season s slump remain unclear Ghana cocoa production, 000s tonnes 900 800 700 600 500 400 300 200 100 - Main crop Light crop Main crop Light crop Main crop Light crop Main crop Light crop Main crop Light crop 2011/12 2012/13 2013/14 2014/15 2015/16 Ghana s cocoa crop totalled 700,000 MT in 2014/15, 23% down on the previous season. A rebound is likely in 2014/15, but its strength could be constrained by the same factors affecting neighbouring Côte d Ivoire. Sources: ICCO, Ecobank Research. 5
Nigeria & Cameroon: failure to launch Despite huge potential, both countries cocoa output is stagnant Cocoa production since 1948/49, 000s tonnes 350 300 250 200 150 100 50 Cameroon Nigeria 0 0 10 20 30 40 50 60 Nigeria has struggled to increase output to its target level of 500,000 MT, but it still produces less than it did in the late 1960s & early 1970s. Cameroon s output has also disappointed, owing to dry weather and structural constraints. In the medium to long term both countries could become significant producers, helping meet part of the expected increase in world cocoa consumption. Source: ICCO. 6
Nigeria faces catastrophic slump in light crop Prolonged dry spell could cut light crop by 60% in 2015/16 Nigeria s 2015/16 cocoa season has been beset by erratic weather from the start. Dry weather before the season started, following by heavy rains and then a strong Harmattan have severely reduced both the main and the mid-crops. Total output is likely to fall to less than 200,000 tonnes in 2015/16. 7
West Africa s grinding capacity has reached a plateau Côte d Ivoire is now the world s number one grinder World cocoa grind, 000s tonnes Share of world cocoa grind, 2014/15 600 500 Cote d'ivoire 400 300 32% 13% 12% Netherlands USA Germany 200 100 5% 10% Indonesia Brazil Malaysia 0 2012/13 2013/14 2014/15 5% 6% 8% 9% Ghana Other Cote d'ivoire Netherlands USA Germany Indonesia Brazil Malaysia Ghana Côte d Ivoire s cocoa grind reached 545,000 MT in 2014/15, 13.1% of the world total. The Ivorian grind has grown by 51% over past five seasons, but has reached a plateau. Ghana s grind has fallen to 200,000 MT, reflecting reduced availability of light crop beans. Sources: ICCO, Ecobank Research. 8
Nigeria s grinding sector is in crisis Laden with debt, grinders are struggling to stay operational Nigeria s cocoa production & grind, 000s tonnes 250 Grind Production (minus grind) 200 150 100 50 0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 The sector is beset by high production costs, erratic output and the lack of regulatory support. After rising to a peak of 60,000 tonnes in 2013/14, Nigeria s grind has declined sharply. Shortages of beans and sky-rocketing prices have forced grinders to operate below capacity. Sources: ICCO, Ecobank Research. 9
Most beans are still exported raw Less than 30% of the cocoa crop is processed into products Côte d Ivoire s cocoa production & grind, 000s MT ave % of cocoa processed 1,800 Production (minus grind) Grind 1,600 1,400 1,200 29% 1,000 800 600 71% 400 200 0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Raw bean exports Cocoa product exports Proportion of the crop which is ground has fallen from 34.2% in 2009/10 to 31.1% in 2014/15. The government aims to increase this to 40% in the short term, and 50% in the medium term. Sources: ICCO, Ecobank Research. 10
Processing of cocoa is still rudimentary Cocoa liquor dominates African exports of cocoa products Africa s share of world cocoa bean & product exports, tonnes, 2013/14 Africa World % of total Raw beans 2,348,673 2,920,196 80.4% Cocoa butter 145,636 855,685 17.0% Cocoa powder & cake 171,010 992,708 17.2% Cocoa paste/liquor 338,348 755,774 44.8% Chocolate 77,821 5,300,706 1.5% Source: ICCO. Africa is the key supplier of raw beans to the world market, exporting 2.9mn tonnes in 2013/14, 80.4% of the world total. Cocoa paste/liquor, from which cocoa powder and butter are extracted, was Africa s largest cocoa product export, accounting for 44.8% of world supply. Africa has a tiny share of the high-end cocoa product market, accounting for just 1.5% of chocolate, 17% of cocoa butter and 17.2% of cocoa powder exports. 11
Africa is capturing little value from its cocoa Share of revenue to farmers has fallen from 16% in 1980 to just 6-7% in 2013. This reflects heavy investment in R&D and marketing by chocolate manufacturers. 12
Cocoa has been the star performer among softs Cocoa prices have steadily strengthened since mid-2013 Commodity price index, US$, Jan 2007 = 100 250 200 150 100 50 1/1/11 10/6/11 17/11/11 25/4/12 2/10/12 11/3/13 18/8/13 25/1/14 4/7/14 11/12/14 20/5/15 Cocoa Coffee (Arabica) Tea Cocoa & tea are the only major traded commodities to have gained in value in 2015. Cocoa prices have been rising since mid-2013, hitting a four-year peak in Sep 2015. Cocoa prices came off the boil in January 2016, but remain above their five-year average of US$2,800 per tonne ahead of an uncertain second half to the 2015/16 season. Sources: IMF, Ecobank Research. 13
Europe remains the key offtaker of African cocoa China & India are growing fast, but have a tiny market share Leading importers of African cocoa, US$, 2014 By region 18% 1% 1% 2% 2% 3% 3% 3% 3% 5% 7% 7% 7% 27% 11% Netherlands USA France Belgium Malaysia Germany Turkey Spain UK Estonia Italy Indonesia India China Other 10% 14% 15% 61% EU North America South-East Asia Other EU continues to take around 60% of Africa s cocoa, and North America around 15%. Chinese & Indian consumption is rising fast, but is still less than 3% of world demand. Of greater significance is the emergence of new grinding hubs in South-East Asia, led by Indonesia, which are increasing competition for West African grinders. Source: Intracen. 14
El Niño is affecting West Africa s cocoa crop But its impact might be waning West Africa s cocoa production before, during & after the five strongest El Niño events since 1960, 000s MT Strong El Niño years Previous season El Niño season Season +1 Season +2 % change 1 season % change 2 seasons % change 3 seasons 1965-66 1,176.3 847.3 957.7 970.3-28.0% -18.6% -17.5% 1972-73 1,150.5 1,008.3 940.0 995.7-12.4% -18.3% -13.5% 1982-83 1,037.8 845.3 849.0 1,074.4-18.5% -18.2% 3.5% 1997-98 1,742.5 1,829.7 1,908.2 2,143.7 5.0% 9.5% 23.0% 2009-10 2,488.2 2,448.5 3,187.7 2,892.2-1.6% 28.1% 16.2% El Niño has historically been associated with a drop in West African production. During the strong El Niños of 1965-66, 1972-73 & 1982-83, the crop fell sharply, both during the affected season and in the following two seasons. However, during the last two strong El Niños (1997-98 & 2009-10), production has been broadly flat, and has been followed by a surge the next two seasons. Sources: ICCO, Ecobank Research. 15
Long-term risks weigh on the outlook Ivorian output growing out of control Consistently high farmgate prices have driven a surge in plantings, many in areas unsuitable for long-term cultivation. This increases the risk of a surprise slump in the future. Disease it s always there Black pod and swollen shoot disease remain a constant threat to the crop, although they impact cocoa growing areas unevenly. Labour shortages Growth of galamsey (gold mining) has caused shortages of workers for Ghana s plantations, and could get worse. There has been much talk of attracting West African youth into cocoa farming. But cocoa is not an easy crop, (maize, cassava and palm oil are easier), and the right incentives are not in place. 16
Key takeaways West Africa remains the world s cocoa production hub West Africa s share of world cocoa production and bean exports exceeds 70% in most seasons. New hybrid varieties, improved provision of inputs and new farming methods are steadily boosting yields and output. Africa s smaller players are struggling to gain scale Côte d Ivoire and Ghana dominate output, but Nigeria and Cameroon have struggled to boost output significantly. West Africa s many micro producers remain niche players. The grinding sector has grown dramatically, but faces an uncertain future Africa accounts for 20% of the world cocoa grind, led by the world s largest grinder, Côte d Ivoire. But grinders face huge challenges to produce competitive products for the global markets given the growth of rival grinding hubs across South-East Asia. Value addition is still too low Most of West Africa s cocoa is still exported raw, and the processing that does occur prior to export is rudimentary. If value capture is to be improved, African sources of demand must be created, leveraging on the emergence of the new consumer class. 17
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