Cocoa Update

Summary

World cocoa bean production for the 1999/2000 season (October/September) is forecast at 2.89 million tons, 1 percent above last season, but 2 percent below the 2.94-million-ton record output in 1995/96. World cocoa grind in 1999/2000 is forecast at 2.8 million tons, slightly above the 2.79 grind in 1998/99, but just below the record set in 1997/98. The prospect of production exceeding grindings for the second year in a row may not bode well for world cocoa prices. Grindings, usually an indication of cocoa consumption, were up a record 6 percent for the second quarter in the United States and up by 2 percent in Germany for that same quarter. However, the United Kingdom and the Netherlands were below last year in second quarter grindings.

World cocoa consumption in 1999/2000 is expected to continue to increase albeit at a slower rate than recent years. The economic slowdown in some key world markets during the past two years appears to be improving and that, coupled with low world cocoa and sugar prices, could stimulate the demand for cocoa in the 1999/2000 season.

Cote d'Ivoire

In Cote d'Ivoire, the largest cocoa producer, 1999/2000 outturn is forecast at 1.2 million tons, nearly the same level as that of 1998/99, but down 2 percent from the record crop of 1995/96. The expected bumper crop is due to favorable weather in 1999. The weather for cocoa bean production was characterized by alternate rains and sunshine in almost every month since January, leading to a large midcrop production and good prospects for the 1999/2000 main crop. The large number of pods carried by the trees during the1998/99 midcrop caused reduced flowering for the 1999/2000 main crop. However, light rains since the beginning of August renewed flowering for the main crop. Prospects for the main crop were enhanced by the absence of heavy rains that cause flowers and small pods to fall. The main crop is expected to be late. Recent field travel indicated fewer pods than during the same period last year, but flowers were more abundant on trees than last year.

Marketing of the 1998/99 crop has been erratic. The marketing of the main crop started smoothly with farmers receiving the government fixed minimum producer price of 575 F CFA/kg. However, the slump in the world market price in early 1999 forced the government to reduce the producer price for the mid crop to 455 F CFA/kg.

There are large quantities of cocoa beans being held upcountry by farmers, cooperatives and purchasing agents for lack of buyers. With the early liberalization of cocoa marketing, the large quantity of the midcrop unsold upcountry and the likelihood that most of this crop will be blended with the next main crop, the dividing point between the 1998/99 and the 1999/2000 crops will be blurred.

Ghana

For Ghana, the forecast for 1999/2000 of 450,000 tons is up 5 percent from last season's harvest and projected to be the largest crop in many years, though short of the 1964/65 record outturn of 566,053 tons. The reason for the increase is timely precipitation that started in early April and continued through September. The 1999/2000 crop is expected to consist of 400,000 tons from the main crop and 50,000 tons from the midcrop. Rainfall amounts have been adequate for cocoa pod development in the cocoa-growing regions of Ghana. Evening rainfall has been generous, followed by adequate sunshine during the day.

In January, representatives from the cocoa industry were tasked to study the sector and make recommendations on how best to proceed with its restructuring. This was aimed at ensuring a long-range expansion program which will take cocoa production to 500,000 tons by the year 2005 and to 700,000 tons by 2010.

Despite the fall in world cocoa prices, the government of Ghana (GOG) and the Ghana Cocoa Board (COCOBOD) have decided to maintain the 1998/1999 producer price. The industry believes prospects for a price recovery in 1999/2000 are good and foreign exchange earnings from cocoa exports in 1999/2000 are expected to rebound. Despite pressure for Ghana to privatize the external marketing of dried cocoa beans, the GOG is reluctant to move in this direction. The GOG is concerned about possible damage to the "premium" quality image of Ghana's cocoa beans. It argues that cocoa buying companies are likely to sacrifice quality in an attempt to maximize export tonnage.

The Cocoa Research Institute of Ghana (CRIG) has developed new cocoa varieties which are high-yielding and early-maturing. These new varieties take 3 years to reach maturity instead of 5 years. CRIG estimates that Ghana's cocoa bean production could expand tenfold if fertilizer application levels were increased to recommended levels. Supplies of cocoa sacks, twine and weighing scales are adequate to meet needs for purchasing and storing dried cocoa beans purchased in rural cocoa growing areas. COCOBOD has awarded a contract for the construction of another warehouse at Takoradi Harbor for storing dried cocoa beans. The construction of this additional warehouse will help minimize delays in cocoa bean exports.

Indonesia

The 1999/2000 cocoa production forecast is for a record 350,000 tons, up 4 percent from last season as the weather this year has been favorable and prices have been high enough for farmers to favorably maintain their crops. The projected increase in output is also due to the large number of trees in Sulawesi, accounting for 75 percent of the total, that were planted 4-5 years ago and are starting to bear fruit. Despite the declines in the local prices, the price level is still considered profitable for farmers. The demand for cocoa beans from exporters also continues strong. The number of local cocoa grinders declined to 7 from 14 prior to the economic crisis. Thus, more beans are sold for export as the price on the world market is still considered more favorable. In spite of shortages in working capital and a reduction in the number of local exporters from 40 to 5, cocoa bean exports for 1999/2000 are forecast at 280,000 tons, a 4-percent increase from the previous season. After the economic crisis, many foreign buyers came to the main producing areas to buy cocoa beans directly from the farmers offering higher prices. Exports of cocoa products during 1999/2000 will remain stable compared to last season, while cocoa bean imports are expected to continue the decline started in 1998/99, due to the increase in production and improved bean quality.

Brazil

In Brazil, the 1999/2000 cocoa crop is forecast at 125,000 tons, down 21 percent from last year and possibly the lowest level in 30 years. The cause for the lowered projection is the devastation of the cocoa crop brought on by the witches' broom fungus in south Bahia. Further exacerbating the situation is an intensification of the infestation brought on recently due to humid weather in the region. The mid-year cocoa crop (May-September1999) was also affected by heavy rains during the flowering period, and, as a result, the crop came to market late. The main cocoa crop (October 1999- April 2000) is already being affected by the witches' broom fungus. Ten years since its onset in 1989, the disease now is affecting nearly the entire cocoa area in south Bahia. The Cocoa Research Center, CEPLAC, completed 10 years of research on the witches' broom fungus in 1999. Although highly criticized by different interest groups, CEPLAC is viewed by many as the best alternative for producers seeking to obtain assistance to fight the fungus. However, some farmers have already moved on to alternative crops, such as coffee, rubber, oil palm or dairy; others have abandoned their plantations altogether.

A number of international analysts have expressed surprise at Brazil's economic recovery since the adoption of the new floating exchange rate in mid-January 1999. However, the devaluation of the Brazilian currency (Real) helped cocoa exporters increase shipments of cocoa products, but limited domestic cocoa bean supplies. Imports of cocoa beans are expected to continue strong in the near future.

The chocolate industry is highly competitive in Brazil, and is dominated by U.S. and European multinationals. Domestic consumption of cocoa and cocoa products is expected to increase by 3 percent during 1999/2000 despite the lower purchasing power of Brazil's consumers and high rates of unemployment in urban areas of Brazil.

Expectations are that Brazil will set another record of cocoa imports during the 1999/2000 season. The Brazilian Ministry of Agriculture and Food Supply (MAA) has approved cocoa imports from Indonesia and also from the Cote d'Ivoire and Ghana. Current stocks of cocoa crushers are adequate to meet short-term demand. Stocks are expected to be down by the end of the 1999/2000 crop year due to the expected lower cocoa crop.

Nigeria

Nigeria's cocoa production for the 1999/2000 season is forecast at 170,000 tons, up from the revised 1998/99 figure of 155,000 tons, largely due to more favorable weather. The rainfall pattern has been beneficial in contrast to the late and erratic rains last season. Hot, dry conditions during the day were generally followed by evening rainfall. This was ideal for cocoa production and helped to reduce the incidence of black pods. Growers now report an average midcrop bean count of 310-320 grams, 10 percent higher than normal.

Nigeria, formerly the world's second largest cocoa producer, has slipped to fifth place. Most cocoa trees are past their prime producing age and replanting activities have been markedly inadequate. Cocoa trees begin to exhibit declining production after 18-20 years. At least 60 percent of Nigeria's cocoa trees are more than 30 years old. The new democratic government places a priority on agricultural development and has reintroduced the National Accelerated Industrial Crop Production Program (NAICPP). The program gives cocoa producing states matching grants to raise hybrid, disease-resistant, high-yielding, and early-maturing seedlings for distribution to farmers at subsidized prices. High urban unemployment, however, is now compelling laborers to return to the farming areas, which is placing pressure on the government of Nigeria to offer assistance to the rural areas dependent on cocoa production.

Malaysia

The 1999/2000 cocoa bean production forecast is 98,000 tons, down slightly from last season. The expected decline is due to extremely wet weather at the end of 1998 and the beginning of 1999, which caused damage to newly formed flowers. With the onset of improved weather during the latter half of 1998, cocoa bean output increased in1997/98 and again in 1998/99, but remained far below the record 240,000 tons set in 1989/90. More cocoa trees have been replaced by oil palms and area under cocoa declined to only about 132,000 hectares in 1998/99. The total capacity of cocoa processing plants in the country has been reduced to 120,000 tons and total bean grindings are close to the present capacity. Local grinders are turning to imported beans to offset the decline in domestic bean output. Rapid development in the cereal/snack/confectionery food sector contributed to steady growth in domestic cocoa product consumption.

Cocoa is Malaysia's third most important agricultural export crop (not including forest products) after palm oil and rubber. However, export earnings from cocoa beans and products accounted for only 0.26 percent of Malaysia's total export earnings in 1998 compared with the peak of 1.9 percent in 1987.

Cocoa bean imports increased in 1998/99 with Indonesia, Papua New Guinea and Ghana being the major suppliers. For 1999/2000, local demand for bean imports is expected to be higher in order to offset a tighter domestic supply situation. Given the strong demand for beans, stock levels are expected to show a gradual decline both in 1998/99 and 1999/2000.

Cocoa is one of the industrial crops to be encouraged by the government of Malaysia (GOM) under the Third Agricultural Policy 1998-2010. Under that policy, the GOM will provide support to these crops (oil palm, rubber, cocoa and forestry products) through incentives, infrastructure assistance, research and development, and human resource development.

Ecuador

The 1999/2000 cocoa bean production forecast for Ecuador is 115,000 tons, up by more than a third from the previous season. The primary reason for the recovery in yields is a return to normal weather patterns. The lower yield of the previous years was due to stress brought on by the strong "El Nino" phenomenon in 1996/97 and abnormal rain patterns in 1997. Both climatic episodes stressed bearing trees and resulted in reduced yields from 1996 to 1998. Cocoa plantations were also afflicted by diseases such as witches' broom and pod-rot. There is concern among producers that extreme cold and excess rainfalls in August 1999, will adversely affect the flowering stage and growing season of this year's crop.

In the early 1990's, the cocoa production area declined as farmers switched to more profitable crops. Now, farmers are being encouraged to renew cocoa production under a program aimed at encouraging small farmers to replace areas previously planted to conventional varieties with a new variety of cocoa plant called CCN51. The variety is resistant to many cocoa diseases and yields about five times more per hectare than the national arriba variety.

Ecuador's exports of cocoa beans and products are forecast to total 111,000 tons, including raw beans and by-products in 1999/2000. This is attributed to increased production, and to processors' demand for aromatic cocoa needed for blending with cocoa from Africa and Asia.

China

Influenced by imports of advanced high-quality products from abroad, China's confectionery market is rapidly changing, creating new opportunities for foreign exporters. In 1997, Chinese confectionery manufacturers sold more than $747 million worth of product. China imported an additional $125 million worth of foreign sugar and chocolate confectionery. Imports declined by 16 percent during the regional economic downturn in 1998. While this market is still dominated by the old traditional brands, it has recently been successfully penetrated by joint-venture and foreign brand products.

China's market for confectionery products has undergone considerable change in the past decade, influenced by rising living standards and the influx of high-quality products carrying foreign brand names. Young girls and women, who consume 80 percent of all candy in China, continue to be the primary marketing targets. Traditionally, candy in China came only in bulk form. Bulk candy, perceived as cheaper, is still widely sold to retail consumers. Some stores tear open fancy packs and dump the chocolate kisses in the bulk candy bins because they sell better there.

The overall trend set by the multinational companies interested in capturing a leading market share is to establish a local production facility. In this way, they not only take advantage of inexpensive labor and eliminate the burden of import duties and formalities, but also are able to freely distribute their product in the domestic market.

The above is excerpted from an article in the September 1999 AgExporter. The author, Peter Maoustakerski, is a marketing specialist with the FAS Agricultural Trade Office in Shanghai, China.

Coffee Update

Association of Coffee Producing Countries (ACPC) Sets Unprecedented 2-Year Export Target:

On July 7, 1999, the ACPC announced July-June export targets for its producing-member countries totaling 50 million 60-kilogram bags annually for 1999/2000 and 2000/2001. This is the first time that the ACPC announced a plan covering two years; prior plans covered only one. The 1998/99 export target total was 52.13 million bags. Brazil's target, the world's largest coffee producer, has been set at 15.0 million bags for 1999/2000 and 17.0 million bags for 2000/2001. Brazil's actions during 1998/99 raised concerns among other coffee-producing countries when it exported a reported 21 million bags when its export target had been set at 15 million bags. The ACPC has set Brazil's 2000/2001 target 2 million bags higher than the 1999/2000 target because of reports that Brazil's 2000/2001 crop may be a record. The complete breakdown of the export targets follows:

Brazil

Brazil continues to offer government-owned stocks through its auction system.

United States

U.S. coffee stocks at the end of August totaled 2.88 million bags, up only 3,000 bags from the July 31, 1999, level. Details follow:

Ginseng Update

On August 13, 1999, the Fish and Wildlife Service (FWS) of the U.S. Department of the Interior announced that effective with the 1999 harvest, the agency will issue export permits only for mature wild American ginseng roots (Panax quinquefolius) more than five years of age. FWS based the decision on new information provided by the National Park Service and the U.S. Forest Service that the species is declining. FWS implemented this rule through the Endangered Species Act under the auspices of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), of which the United States is a signatory.

In calendar year 1998, the United States exported 109 tons of wild ginseng root, valued at $13.8 million. This is a sharp decline from 1997 when exports topped 144 tons valued at more than $25.3 million. Approximately 90 percent of the product is shipped to Hong Kong. The rule does not affect shipments of cultivated ginseng, which constitute the majority of exports in volume terms. In 1998, the United States shipped 702 metric tons of cultivated ginseng, equaling the 1997 export total. However, in value terms, exports of cultivated ginseng fell from $31.6 million in 1997 to $20.9 million in 1998, a decline of 33 percent. The decline in U.S. export value is due mainly to increased Canadian production and the subsequent downward pressure on world prices. Also, the economic downturn in Asia affected the demand, especially in 1998. About 75 percent of all cultivated ginseng is shipped to Hong Kong.

In 1975, because of the high demand for wild roots, American ginseng was listed on Appendix II of the CITES, a treaty that regulates trade in animals and plants to ensure the survival of wild populations. An Appendix II listing means that export permits must be issued by the country of origin stating that a particular shipment for export was legally collected and that its export is not harmful to the survival of that species in the wild. FWS began approving export of ginseng on a state-by-state basis in 1978. More information on the FWS decision can be found at http://international.fws.gov/global/ginindx.html.

Last modified: Thursday, April 06, 2000