by Conor Godfrey on March 28, 2011
So far on this blog we’ve discussed the humanitarian crisis in Cote d’Ivoire, and the merits of military intervention.
Our profile would not be complete without discussing the economic context in which all of this occurs.
This is also true in Libya of course: by Libyan nightfall yesterday, the rebels were back in control of two key oil towns and claimed to have found a gulf state buyer for the 100,000 barrels per day of production currently in rebel hands.
But back to Cote d’Ivoire.
At independence, there was a famous bet between the Kwame Nkrumah and Félix Houphouët-Boigny—the two fathers of independence for Ghana and Cote d’Ivoire respectively.
They bet on which country would lead West Africa two decades on. Cote d’Ivoire vigorously pursued economic integration with France and allowed capitalism to thrive.
Ghana on the other hand broke most ties with the metropole, and gave the state a much stronger hand in the economy.
We could write an entire piece on who is ‘winning’ in 2011, but the important thing to note for this piece is that Felix Boigny’s approach allowed cocoa production to soar as French investment and agricultural know-how poured into Cote d’Ivoire.
Cote d’Ivoire exports approximately 40 percent of the world’s cocoa crop, with the West African region, including Ghana (21 percent), Nigeria (5 percent), and Cameron (5 percent), accounting for about 70 percent of international production.
As violence continues to escalate in Cote d’Ivoire, international markets have responded by driving cocoa futures to their highest price in 32 years — $3,586 per metric ton for May delivery.
EU and U.S. sanctions imposed in the aftermath of the disputed November 28th, 2010 election currently forbid companies from conducting business with entities linked to the regime of the intransigent incumbent Laurent Gbabgo.
This includes critical actors in the cocoa industry such as the cocoa regulators and the ports of San Pedro and Abidjan.
On top of these sanctions, President Outtara has attempted to starve his rival of approximately one billion dollars in tax revenue by issuing, and then extending, a ban on cocoa exports.
Taken together, the targeted sanctions and the export ban constitute a virtual embargo on Ivorian cocoa.
The recent extension of the export ban comes at a moment when cocoa shipments from Côte d’Ivoire have all but dried up.
Major cocoa purchasers such as Cargill, ADM, and Barry Callebaut, have either dramatically scaled down operations or stopped exporting completely.
This means that approximately 25 percent of the Ivorian cocoa crop, equivalent to 10 percent of the world’s cocoa crop, is piling up in humid Ivorian warehouses.
Recent estimates suggest that 300,000 tons of cocoa have been stockpiled up-country and an additional 100,000 tons, at the ports.
Ivoirian cocoa is produced in large part by small holder farmers who do not have the funds for proper warehousing, and industry stakeholders fear that the remaining crop will soon spoil if the sanctions remain in place.
Recently less than 5,000 tons of cocoa has been arriving per week at Ivorian ports from farms in the interior, and even that meager flow will likely dry up completely as Ivorian banks shut down operations.
Predictably, the export ban and subsequent banking crisis have exacerbated social tensions in Côte d’Ivoire.
Approximately seven million Ivoirians rely on the cocoa industry for their livelihood. Already thousands of Ivorian farmers have symbolically burned portions of their crop to protest the embargo.
The crisis in Côte d’Ivoire will likely reshape the cocoa industry in ways that even the 2002-2004 civil war did not.
The recent sanctions crippling the Ivorian industry have led to a dramatic upsurge in cocoa being smuggled through Ghana: since the October harvest in Côte d’Ivoire, around 100,000 tons of Ivorian cocoa have left West Africa through Ghana.
The two countries share a 668 km border that runs through the middle of the most productive cocoa regions in both countries.
The Ghanaian government, which fixes the price for cocoa beans, has amplified this trend by raising the price paid to Ghanaian farmers by about 30 percent.
The Ivorian crisis also coincided with a natural increase in Ghanaian production capacity due to better use of pesticides and fertilizers.
This turbulence in the West African cocoa market comes at a time when experts predict a steady increase in demand for cocoa due to the emergence of consumers in India and China. During 2009-10, demand outstripped supply by 82,000 metric tons, according to the International Cocoa Organization.
Volatility in this market will continue, buoyed by uncertainty over the deteriorating quality of the cocoa stockpiling in Ivorian warehouses, and the threat of a price collapse as soon as a solution to the Ivoirian political crisis appears on the horizon.
In the two weeks between October 11 and October 31, 2002, when both sides discussed a truce in the Ivorian civil war, Cocoa prices sank from $2,405 to $2,040 per ton.
The banking crisis precipitated by the political instability and cocoa embargo is the final factor in prolonging the reining instability.
The consensus among analysts is that Mr. Gbagbo needs between $100-150 million per month to pay the military and essential civil service personnel.
His signature is no longer valid at the Regional Central Bank that prints Côte d’Ivoire’s currency, and Côte D’Ivoire missed $30 million in interest payments at the end of January.
Soon Mr. Gbagbo’s financial position will become untenable.