Cocoa

Introduction

The projections employed dynamic time series models to analyse the world cocoa economy. Essentially, autoregressive distributed lag models were used to capture the dynamic process of market adjustment in the world cocoa bean market. The forecasts are obtained from s -step a-head ADL models, where "s" is the forecast horizon. International cocoa prices were included as exogenous factors. Their values over the forecast horizon were obtained from their autoregressive representations. Projections were based on the assumption of normal weather conditions, and a continuation of the past trends in yields, planted areas, population and income growth. Adjustments were made to reflect current policies and future market prospects. The forecasting models captured cycles and trends in the world cocoa beans market to a satisfactory level.

Production

World cocoa production is projected to grow at a rate of 2.2 percent a year, from 1998 - 2000 to 2010, compared with the 1.7 percent growth during the previous decade, and reach 3.7 million tonnes. During the same period, Africa’s share in the global production is expected to decrease slightly from 69 percent to 68 percent, while the share of the Far East is projected to remain at 18 percent and that of Latin America and the Caribbean at 14 percent.

Africa is expected to remain the world's leading cocoa producing area over the next decade. Production in Côte d'Ivoire, the world's largest cocoa bean producer, should grow by 2.3 percent a year from 1.2 million tonnes of the base period to 1.6 million tonnes in 2010, and account for 44 percent of global cocoa production due mainly to the increased foreign direct investment followed by the market liberalization. Yields in Côte d'Ivoire are well below levels seen in Asia partly because of less use of agricultural inputs. However, the recent surge in world cocoa prices has made it easier for the growers to use more inputs. If this trend continues, volume of cocoa produced in Côte d'Ivoire could increase further. Output in Ghana, the second largest cocoa bean producer in Africa, would grow from 410 000 tonnes in 1998 - 2000 to 490 000 tonnes in 2010, an annual average growth rate of 1.6 percent. The corresponding growth rate for the previous decade was 3.3 percent. The lower projected growth rate over the next decade would result from the outbreak of diseases (such as swollen shoot virus, black pod and mirids), increased competition at the world market and low export prices. Over the same period, Nigeria and Cameroon are projected to increase outputs by 1.4 percent and 0.3 percent, respectively.

Cocoa production in Latin America is projected to increase from 397 000 tonnes during the base period to 520 000 tonnes in 2010, an annual growth rate of 2.5 percent. Outputs in Brazil, the largest cocoa bean producer in the region, and Colombia, the third largest, are expected to fall, but an increase in outputs in other cocoa producing countries in the region would more than offset the decline. Output in Brazil is projected to increase by 2.2 percent annually and reach 180 000 tonnes by 2010. The production and yields of cocoa beans in Brazil have decreased during the previous decade because of the detrimental production loss caused by witches' broom disease. The recently found [discovered?] use of new varieties would not bring the production back to the level achieved during the 1980s, because some producers have already switched to alternative crops, discouraged by the recent low world prices. During the same period, output in Ecuador, the second largest cocoa bean producer in Latin America, would increase by 0.8 percent annually and reach 94 000 tonnes. Ecuador has successfully used a new variety resistance to the witches’ broom disease, which had also affected their cocoa production areas. However, growth is expected to be only slight because of the increasing costs of production and lower returns to growers. In Colombia, outputs are projected to fall by 3.1 percent per annum. On the other hand, outputs in Dominican Republic and Mexico are expected to grow by 1.8 percent and 0.5 percent, respectively.

In the Far East, production had grown rapidly over the past two decades, and this growth is likely to continue. Production in the Far East is projected to grow by 2.7 percent per year from 509 000 tonnes during the base period to 680 000 tonnes in 2010 reflecting the expected improvement in yields. The Far East is expected to replace Latin America and the Caribbean as the second largest cocoa producing region by 2010. Most of the production growth in Asia would come from Indonesia, the world's third largest cocoa bean producer after Côte d'Ivoire and Ghana. Production in Indonesia is projected to grow by 3.5 percent annually to 574 000 tonnes in 2010 and account for 16 percent of the global production by 2010, compared to 14 percent in 1998 - 2000. In Indonesia, the Government policies had encouraged expansion of production, and most of the increases during the last two decades were bulk cocoa coming from hybrid trees. While the expansion of production area in Indonesia has slowed since the late 1990s, yields in the country are still the highest among major cocoa producing countries. A close link between the world market prices and the producer prices in Indonesia also contributed to the country’s high yields. Since the growers earn a high proportion of the market prices, they can invest in inputs, which in turn results in improvement in yields. Production in Malaysia, where expansions of urban areas and real estate development have reduced cocoa producing areas, is projected to fall by 1.7 percent annually and reach 43 000 by 2010. The downward trend has been observed since the early 1990s when the outbreak of disease coincided with the deterioration of country's macro-economic conditions. In addition, farmers switched to production from cocoa to more lucrative crops, such as palm oil, in response to the fall in world cocoa prices during the 1990s. Therefore, outputs in Malaysia are unlikely to rebound to the level achieved a couple of decades ago.

Consumption

In 2010 world grindings of cocoa beans, a proxy for world cocoa consumption, would amount to 3.6 million tonnes, reflecting an average annual increase of 2.1 percent from 2.8 million tonnes during the base period. Consumption will continue to be concentrated in developed counties, which are expected to account for 64 percent of world cocoa consumption in 2010. Consumption in these countries is projected to increase at an annual rate of 2.2 percent from 1.8 million tonnes during the base period to 2.3 million tonnes in 2010.

Consumption in Europe is projected to grow by 1.7 percent per annum and reach 1.4 million tonnes. Europe is likely to continue to be the world's largest cocoa consuming area, accounting for 40 percent of global cocoa consumption in 2010. Chocolate and cocoa based products in the EU are currently governed by a 2000 directive which authorises the replacement of cocoa butter by less expensive cocoa butter substitutes up to 5 of the total weight of the finished product. Under the Directive, chocolate products that contain vegetable fats other than cocoa butter may be marketed in the EU provided that their labelling is supplemented by a statement. Member countries have until August 2003 to implement national laws to enforce this directive. Consumption in North America, the world's second largest cocoa consuming area, is likely to grow by 3.6 percent per annum and reach 703 000 tonnes. In the former Soviet Union/CIS, consumption is expected to grow by 0.8 percent per annum from 65 000 tonnes to 71 000 tonnes, reflecting expected increase in income in these countries. In Japan, consumption is expected to increase from 48 000 tonnes during the base period to 56 000 tonnes in 2010.

Consumption in developing countries as a group is expected to amount to 1.3 million tonnes by 2010, an annual growth rate of 1.8 percent. Africa, where capital formation for grindings has grown rapidly over the past decade, will remain the largest consuming region in this group, accounting for 35 percent of the consumption of developing countries. The share of consumption in Latin America and Caribbean, where the relative cost for grindings are higher compared to Africa, is expected to decrease from 32 percent to 28 percent. In the Far East, where per capita consumption is still small, the share in consumption is projected to increase from 31 percent during the same period to 34 percent by 2010.

Trade

By 2010 the world cocoa market is expected to be approximately in balance. Beans will continue to form the large majority of cocoa exports, despite some increase of processing capacity in producing countries, especially those in Africa. Global cocoa bean exports are projected to reach 3.0 million tonnes by 2010, an average annual growth rate of 2.8 percent. Total exports from Africa are expected to grow by 2.8 percent annually from 1.7 million tonnes during the base period to 2.3 million tonnes in 2010, with Côte d'Ivoire, Ghana and Nigeria achieving an annual average growth rate of about 3 percent. Exports from Côte d'Ivoire are projected to increase to 1.5 million tonnes by 2010, or 51 percent of the global cocoa exports, although this growth is subject to the development of its current political instability. Exports from Ghana would reach 469 000 tonnes or 16 percent of the world total. The share of African exports in the world market is expected to remain stable, about 78 percent of the global exports.

Exports from the Far East, which increased rapidly during the 1980s and continued to grow at a lower rate during the 1990s, are expected to grow further and reach 529 000 tonnes by 2010. The increase in the Far East during the 1980s resulted mainly from rapidly growing shipments from Malaysia that accounted for 54 percent of the exports from the region. However, exports fell dramatically during the 1990s when farmers switched production. The increase in exports during the current decade is likely to result mostly from the increase in yields, and the share of the Malaysian exports in the region should increase only slightly, from 4.6 percent during the base period to 5.3 percent in 2010. On the other hand, exports from Indonesia grew rapidly during the 1980s and 1990s and are projected to continue to grow at 4.3 percent per year over the next decade and account for 98 percent of cocoa bean exports from the Far East by 2010, compared to 30 percent during the 1980s and 84 percent during the 1990s.

In Latin America and the Caribbean, cocoa exports are projected to increase from 97 000 tonnes during the base period to 130 000 tonnes reflecting increased exports from Brazil where production is expected to recover from the loss caused by the witches’ broom disease.

Global cocoa imports are expected to increase by 2.2 percent annually between 1998 - 2000 and 2010, compared with 3.1 percent during the previous decade. Imports in developed counties as a group are expected to grow at an annual rate of 2.5 percent to 2.6 million tonnes. Europe should continue to be the main consumer of cocoa, accounting for 65 percent of global cocoa imports in 2010. In North America, imports are projected to grow by 0.3 percent per year, to reach 505 000 tonnes by 2010. Shipments to the countries of the former Soviet Union/the Commonwealth of Independent States (CIS) are likely to decrease slightly by 1.1 percent per annum. In Japan, imports are expected to increase by 1.4 percent per year from 48 000 tonnes in 1998 - 2000 to 56 000 tonnes in 2010. Imports in developing countries as a group are projected to remain unchanged and would account for 11.3 percent of world cocoa imports, compared with the 14 percent during the previous decade.

Issues and uncertainties

The projections show an approximate balance in the world cocoa economy by 2010. However, in any single year, the size of a surplus or deficit continues to depend on weather conditions, market prices and changes in the level of stocks. Analysis on market prospects to 2010 suggests that global cocoa trade will continue to expand. However, the rate of expansion would be slower compared to the previous decade constrained by lower consumption growth in most of the major markets. Prices of cocoa beans in 2000/2001 were at their lowest levels in three decades, mainly due to a fundamental oversupply. Although some recovery in cocoa prices has occurred since mid - 2001 as a result of the combination of reduced world cocoa bean production and increased speculative buying, prices of cocoa are not likely to improve significantly in the medium term, with low consumption expansion and steady production growth.

In the period to 2010, cocoa exports from developing countries would continue to be mainly in the form of beans. This suggests that the benefits of cocoa processing in adding value will continue to be enjoyed mainly by the importing countries. Cocoa producing countries have been aware of the need for developing the local grindings of beans to add value to their exports. Some African countries have increased their local processing capacity by providing subsidy, but most producing countries have not yet been able to increase the value addition to their exports. A major obstacle hindering the local processing of beans has not been the processing capacity itself, but the high degree of vertical integration of the multinational firms in the cocoa and chocolate industry, most of which have traditionally been established in importing countries. What the producing countries need most are efficient and sophisticated marketing skills. Unless this issue is solved, the benefit of value addition will continue to be distributed mostly among traditional bean importing countries while income of farmers would stay low.

Table 2.29. Cocoa: actual and projected production

Table 2.30. Cocoa: actual and projected consumption