Fostering Global Agri-Commerce
Apr 2, 2024
Ivory Coast - According to a recent report by the financial news and research organization Economic and Financial Affairs Council (ECOFIN), the Ivorian forward sale of cocoa is presently under investigation for possibly impeding the ability of farmers and the state to maximize revenues in the face of rising cocoa prices.
This week's $10,000 per ton price of Ivorian cocoa has raised fears that the current advance sales mechanism has to be reassessed in order to remain competitive.
The Coffee-Cocoa Council (CCC), which oversees the system, uses an anticipatory marketing strategy in which the prices of cocoa are fixed at the start of each campaign.
This implies that 70–80% of the harvest is sold through electronic auctions in advance to domestic or international exporters, with the remaining portion being sold through cash transactions.
Although in the past this approach has kept producers stable by protecting them from foreign price fluctuations, ECOFIN claims that in light of the recent spike in cocoa prices, it may now be restricting potential benefits and is thus in need of revisions to allow for more flexibility.
The fixed advance sale price, which is based on previous season pricing and adjusted differentials, does not accurately represent the large price swings observed in the current market, according to ECOFIN'S research, which criticized the system for being insensitive to the state of the market.
The inflexibility of the system was also noted in the study as a barrier that prevents producers from receiving higher prices and less chances for quality differentiation.
This indicates that Ivorian cocoa farmers are limited by set regulation pricing and lack mechanisms for quality-based incentives, in contrast to producers in other nations who can bargain bonuses for quality improvements. To address these shortfalls, ECOFIN is promoting a more adaptable strategy that will help the nation and farmers alike.
The paper makes many recommendations, such as including provisions that permit price modifications in response to current market conditions and possible premium payments in the event that prices rise over certain levels.
In order to guarantee that farmers and the state can fully profit from the unstable cocoa market, this proposed revamp seeks to bring the advance sales system into line with current market realities.