World cocoa sector could be in surplus for years - ICCO

By Joe Bavier and Ange Aboa

ABIDJAN (Reuters) - The world's cocoa sector may be facing a structural surplus that risks depressing global prices and dealing a blow to producer country and farm revenues in the coming years, a senior official with International Cocoa Organization (ICCO) said on Wednesday.

After rising steadily for several years, cocoa futures have tumbled since September with New York cocoa falling to its lowest level in nearly a decade earlier this month on the back of bumper crops around the world.

Global production is set to climb by almost 15 percent in 2016/17, according to the ICCO. Demand is failing to keep pace, resulting in a projected global surplus of 264,000 tonnes.

 

"Our fear is that the world cocoa sector has entered a period of structural surplus that is likely to last for some time to come," ICCO Executive Director Jean-Marc Anga told Reuters during an interview in Abidjan, Ivory Coast.

Expectations of rising global chocolate consumption coupled with ageing farmers and plantations in top producing countries in West Africa has long raised concern over the potential for a structural cocoa deficit.

"I would like to see the person who would stand tall and say that theory still holds. Our view over the past five to ten years has never been that of a structural deficit," Anga said.

Ivory Coast, the world's top producer, has been the hardest hit by the rapid drop in prices over the past six months.

A wave of export contract defaults along with higher than expected production there have caused a glut of beans at ports and in upcountry warehouses, leaving farmers struggling to sell their crops and fuelling social unrest.

"From where I'm sitting, all the noises I am getting from producer countries are of serious concern because the current global price is affecting revenue at the government level," Anga said.

ICCO officials will meet with its members, which include both producer and consumer countries, in April to seek solutions that will help reverse the slide in prices.

The International Cocoa Agreement, the body's founding document, contains a provision that allows producer countries to discuss and coordinate their production policies, and Anga said he expected them to take advantage of it.

"I don't really see the logic of continuing to increase production when we see the effects this has on countries," he said. "I think they are all aware of the need to have a more rational approach to their production policies."

The ICCO will also discuss ways to increase consumption.

With traditional markets in Western Europe and North America close to saturation, Anga said it was weighing strategies for penetrating markets in the developing world and discussing bringing China and Indian into the ICCO as members.

(Editing by Mark Potter)