Cocoa : recent world market trends in relation to stabilization problems and policies

E/CN.14/STC/CS/4 FAO/Com./Africa 3 Rome, 15 May ^

1

COCOA

Recent World Market Trends in Relation to Stabilization Problems and Policies

Note prepared by the Food and Agriculture Organization for the ECA Commodity

Stabilization Meeting, Lagos? 18 - 26

June 1962

21730/E

CONTENTS

Page

R3CENT TRENDS • • • • 1

¥ORLD COCOA CONSUMPTION - = 3

PRODUCTION AND EXPORTS • ♦ • • 6

THE LONG-TERM OUTLOOK 8

NATIONAL STABILIZATION POLICIES. * H

SOME POLICY CONSIDERATIONS. 13

National Price Stabilization.. *...,»..«♦...«»...»..»...•.. 13

International Price Stabilization. *. 14

ANN3X - Tables

Table SJ - Cocoa; World production, consumption and stock changes, pro-T.rar and 1952-61.

Table 2 - Annual fluctuations in quantity,, "unit value and value of cocoa bean exports from selected countrios, 1957-61.

Table 3 - The importance of cocoa in the economics of African producing countries.

Table 4 - Cocoa bean grindings by main consuming country, pre war and 1953-62.

Table 5 - Consumption per head of cocoa by main importing areas, pro-war and 1953-60,

Tablo 6 - Major cost elements in chocolate production in solocted

oountrics, 1954 and 1958*

Tablo 7 - The offoot of taxes on chooolato on tho lovol of cocoa consumption in Western Europe in 1957-

Tablo 8 - Changes in cocoa production, 1953-62.

Tablo 9 - Exports of cocoa boans and cocoa products from producing

oountricsj 1953—60.

Table 10 - Exports of oocoa boans from producing countrios by main

destinations, 195^-60.

Tablo 11 - Total cocoa grindings in 1957-59 and ostimatos for

1970.

Tablo 12 - Variations in local taxes and marketing board margins

in Ghana and Nigeria,

Tablo 13 - Relationship botwoon export unit values' of coooa and

prices paid to coooa producers, 1952—60.

I£iOJ3TT TiCTDS

In tho past two years thorc has "boon a major change in the world cocoa market.

Until, 1959, world production had "boon rising at an annual rate of about 3 por cent,

"but in tho two subsequent crop years, output rose by some 14 per cent, por annum.

Production in I96O/6I, at 1,17 million tons, was 40 per cent high&r than the average for 1956-58 (sec Table l). Latest indications aro that output in the

current season, I96I/62, may be in tho region of 1.18 million tons. World

consumption has continued to rise, but more slowly; consumption in' 19^1, at a million tons, was about one-sixth higher than the 1956-58 'average.

Consumption is expected to rise to about 1,1 million in 1962, But the upsurge in production has resulted in a sharp increase in stocks, by some 300,000 tons

(16 weeks1 current consumption) in the throe years 1959-61*

The sharp expansion in available supplies in relation to consumption Caused a substantial fall in price. Tho How York, spot Accra, price foil from 31*4 "to

25.6 conte per lb, between December I959 and December I96G5 there was a further

reduction in the early months of I96I - a low point of 20,6 cents being reached in

March - but' tho price remained fairly stable, ojb about 21-22 cents until tho ond'

of tho year, Tho annual avcrago price in 196I was the lowest for over a docado*

Tho sharp fall in the world cocoa price has had sorious rcporcussions on tho export income of tho main producing countries. The value of cocoa exports from

Ghana, for instance, failed to increase between 1959 and 19&0, or bctwoon the

first eight months of i960 and the corresponding period of I96I, expansion in tho quantity of cocoa beans exported bting almost exactly offset by tho fall in tho

average export price (see Table 2). For Nigeria, whore tho incroaso in

production wna';con£idorably loss than in Ghana, the fall in prices exceeded thfc incroas'o in the quantity exported and the value of. exports fell ~by 10 per cont,

in i960, Tho Camoroun Republic has also suffered a fall in export roccipts for

cocoa since 1959 j despite r. substantial incrcr.Go in tho quantity shipped.

The Ivory Coast failed to offset the price decline in i960 by increased shipments, but the latest indications aro that tho quantity exported in I96I was about

405^ greater than' in the previous year, with a consequently substantial increase

in oxport values.

Those four African countries account for about two--thirds of world cocoa exports (see Table 3), Moreover, in all three, cocoa exports represent a major part of total export earnings. In Ghana9 nearly 70 per cent of total exports

in i958-59 was accounted for by cocoa, tho proportion falling to about

— 2 —

60 per oont in i960. The failure of receipts from cocoa exports to ri£o together with a continuing increase in imports, including imports of capital equipment for economic development, has resulted in a largo

reduction in the foreign assets of the Government of Ghana,.!/

In the other Host African producing countries, too, the weakness in

the cocon. market has caused considerable strain on the 'balance of payments, The deterioration in the visible trade account during the first half of

1961 was particularly marked for Ghana and Nigeria,

i

Visiblo trado balance

Ghana (£G. tnillion) Nigeria (£N-. million)

Camoroun (C.F»A. billion francs)

1st half

2252

5'.i

% 2

4.5

1st half

19.60

0-.2 -6'. 8 4.4

1st half

12&

-13'. 9 -23'. 9 2.5

l/ Economic Survey, 1960o Central Bureau of Statistics, Accra, I96I.

2/ Valuo of exports, f,o,b. minus value of imports, cfi.±\

WORLD COCOA CONSUMPTION

The fall in cocoa prices since 1959 has stimulated the consumption of oocoa beans in almost all countries (see Table 4). A large expansion has

> taken place in the United States, where cocoa grindings rose by an estimated 26 thousand tons (12 percent) "between i960 and 196I, and the latest forecast m for 1962 indicates a further rise of 20 tousand tons (8 percent). In

^ Western Europe,grindings in the Netherlands have "been rising rapidly, the

1Q62 forecast showing a 30 per cent increase over the i960 level, while in

West Germany the corresponding increase is one of 14 percent. Thore was also a noticeable recovery in the United Kingdom, where the quantity

ground xp. 1959 and i960 has been unusually low due to high imports of cocoa products. Together, the United States, Britain and the European Economic Community accounted for two-thirds «f the world increase in cocoa grindings between i960 and the forecast 1962 level. Most of the increase in. the total for Eastern Europe since i960 has been in cocoa grindings in the U.S.S.E. . . In the "rest of the world" (see Table 4), grindings rose by nearly 30,000

tons from i960 to the forecast 1962 level| of this increase, about 80 percent was in Ghana, and the Dominican Republic (where processing is done for the_

export market)? and there was also a marked upward trend'in Japan? grindings in Brazil, however, are expected to be 12,000 less than in i960, indicating ,

a reduction in the expert of cocoa products.

Estimates of cocoa consumption, defined as grindings plus net

imports of cocoa products are not yet available for periods after i960. A comparison* of the trends in cocoa consumption per head- in the main importing areas up to i960 (see Table 5), show that during the 1950's consumption per head was virtually static in the United States, and foil off in the United Kingdom^ in both countries, the level in-1959-60 was below pre-war. There was a moderate decline in per caput consumption in the European Economic

Community from I956-58 to 1959-60, and an increase in the rest of Western

Europe in this period.

Some guide to recont trends in per caput cocoa consumption can be^

obtained if it is assume that consumption has increased approximately in

the same proportion as grindings since 1959-6O. On this assumption, per

caput consumption in the United States in I962 would be about 1.93 kg. (which just exceeds the pre-war level), that in the United Kingdom would be

about I.95 kg. (well above pre-war), while in the European Economic Community, the 1962 consumption per head would be 1.57 kg. (about one-quarter^above

1959-60 and one-half higher than pre-war, when German and Italian imports

♦• were restricted for autarcfiic reasons),

- 4 -

Prioosa The principal reason for these increases in consumption was the fall in prices. At the retail level,, it is difficult to obtain representative prices of chocolate, and the data currently available need to he interpreted with some caution. However, they do indicate a fall in the retail chocolate

price between 1959 and the first half of 1961 of about 12 percent in the United States, 6 percent in the United Kingdom and France, 16 per cent in Denmark and 23 percent in Norway. By contrast, retail prices of chocolate appear ^ have risen slightly in the Netherlands and West Germany in this period, ihe fall in the- wholesale price of cocoa beans is also likely to have removed, the incentive for use of various substitutes for cocoa butter m the _ _ manufacturing •f cocoa products, but it is not possible to assess thxs in

quantitative terns.

This relationship between price and.consumption changes that have occurred in recent yeaxs generally accords with the results of a number of recent studies into price-otastioitics of demand, in various consuming countries. These have shown price

■elasticities" ranging from -0.6 to -1,2 for chocolate consumption in relation to the retail prioe for five consuming countries,, and elasticities be^weeft -QO ana

^0.5 "fos grindings in relation to the world price for a larger number of countnes.l/

Retail prices of chocolate and cocoa powder fluctuate very, much less than do c*coa bean prices, since cocoa beans account-for only a proportion of total costs of production. The main elements in total production co^ts are shown mJ-&D1© b for two years, 1954 and 1958, for a number of manufacturing countries. ahe_

relative importance of cocoa beans in total.costs varies considerably? it is highest in the Netherlands, where nearly two-fifths by value of t^tal output

consists of cocoa butter. In all these countries, the relative costs of cocoa beans has fallen since 1954, the world price being some 23 percent l»wer in 1958 than in 1954. Howevor, if the 1954 proportion of cocoa in total costs was,

say, 30 percent, the fall in the choeolate price would be only 7 percent i±

\

1/ The Cocoa Situation, P.A.O. Cocoa Study Group, March, 196I, Appendices II-IV.

other costs remained unclianged.

Taxes; In a number of countries of Western Europe, a substantial proportion of the retail price of chocolate consists of taxes.

These take a variety of forms, from import duties on cocoa beans and sugar, to turnover taxes on the cocoa products and special _ taxes on chocolate and chocolate confectionery. A recent analysis of these various taxes ^shows that in 1957, taxes represented as much as one-half of the retail price of chocolate in Finland and Norway, about two-fifths in Denmark and about one-third in Italy and Sweden, At the other end of the scale, the tax burden was

5 percent or less in Switzerland and the United Kingdom (see Table 7). In April 1?62, however, a tax of l$f- on wholesale prices of

chocolate products was introduced in the U.K.

There is - as would have been expected - an inverse relation ship between the incidence of taxes, on the one hand, and per oaput cocoa consumption, on -the other. The countries with high tax_rates are also countries with lower than average per caput consumption, though of course many other factors, such as national habits and tastes, advertising, etc, as well as income differences, affect

the level of consumption in the different countries.

It is of considerable interest, in this connection,_to make some assessment of the probable restrictive effect of taxation on the level of cocoa consumption. Tho study of price-elasticity at the retail stage mentioned earlier covered only a limited^number of European countries, but if these can be taken as a basis -* , the hypothetical change in consumption that would have occurred as a result of the aboliton of all. -taxes on chocolate manufacture can be calculated. The results are, of course, extremely approximate and could, no doubt, be improved on the basis of further investigation.

Clearly, the method cannot yield more than a very rough order of magnitude, which is shown in Table 7 as an increase of 35>0°° tons, or 9 percont . of tho actual consumption of the 12 countries listed

in 1957-

if By Mr. 0. Haavardsholm (see Table 7).

2/ For countries for which no price-elasticity estimate was

available, a coefficient was taken similar to that known

for a country with a similar income and tax level

(e.g. For West Germany the French elasticity was used).

- 6 -

PRODUCTION MD EXPORTS

The sharp expansion in cocoa production after 195& has already

"been commented upon. The greater part of this expansion (over 85 per cent ) took place in Ghana and Nigeria (see Table 8). In Ghana,

the largest producing country, output in the mid-1950's had "been some 15 percent below the pre-war average, while in Nigeria the expansion in the mid-1950's had been only of moderate proportions. The

expansion in Ghana's production was particularly sharp in the crop

season 196O/6I - a rise of 118,000 tons,or 36 percent over the

previous season's total - and though there has been a fall in out

put in 196l/62j the average outturn for the two seasons, at

400,000 tons, was as much as 50 percent above the average for the

1957/8 - 1959/60 seasons. Nigerian production rose by more than one-third from the average 1957/8 - 1959/60 levol, while output

in the Ivory Coast was up by one-half.

There haye been several distinct factors behind this recent increase in production. First, there had been a considerable rise in new plantings in the earlier and mid-1950's? particularly in Ghana. It has been estimated that about 1.2 million acres have been newly planted to cocoa since 1950 in Ghana, representing one-quarter of the total area under cocoa -=/ . New planting has not been a

major factor in other African producing countries. In Latin America, there has been some new planting in Brazil, Ecuador and the Dominican Republic, which has been a main factor in the increase in production in those areas.

1/ The Cocoa Situation, F.A.O. Cocoa Study Group, March, I96I.

Second, anti-disease and anti-pest spraying has become widespread in recent years in the main producing countries of West Africa. The effect of the

anti-capsid compaigns has teen particularly beneficial. In Ghana, the Cocoa Mark.e-ting Board has financed the campaign,^/though cocoa farmers themselves are also investing in spraying machinery and insecticides, both of which are heavily subsidized. In Nigeria, the spraying campaigns have

"been the main reason for the recent rise in cocoa production. Even so, only a small proportion of the existing cocoa area is sprayed adequately, and a further extension of the spraying campaigns could lead to additional

increases in production.

Third, higher yielding varieties have "been developed in recent years and an increasing proportion of new plantings have "been in these more prolific varieties. Ik Ghana, there has "been increased planting of Amazon varieties, which are more vigorous than the usual types and come into bearing two or three years earlier. Moreover, from 1962 onwards, new very high yielding hybrid selections developed at the West African Cocoa Research Institute will be available for distribution in Ghana.2/

The further extension of spraying techniques and the introduction of high yielding varieties seems certain to result in further increases in world production in the future. The outlook for both production and

consumption is discussed in greater detail below.

Exports. African producing countries accounted for over 70 percent of.world exports of cocoa beans in i960, compared with about 65 percent of world

cocoa production. The diffsrance is accounted for by the fact that very little cocoa is retained for local consumption in the African i.roducing countries (though grindings in 1962 are forecast at 38,000 tons, compared with 23^000 tons in 1961), whereas in Latin America local consumption is relatively much higher (the forecast for 1962 being 94,000 tons).

As a result of the recent increase in production in Ghana and Nigeria, these two countries together accounted for 52 - 54 xercent.of world cocoa bean exports in 1959 - 60, as against 45 percent in 1933 - 55 (Table 9).

1/ The Board spent £21 million on cocoa rehabilitation up to the■end of

the 1958/59 crop year.

2/ Economic Survey. 1960, Central Bureau of Statistics, Accra, 196I.

Exports from Africa con 1st almost wholly of beans, whereas Brazil - alone among the producing countries - also has art important export trade

in cocoa "butter. Even allowing for the loss in weight between bean. ■ / usage and cocoa "butter output, there is a considerable financial advantage ^

in the export of cocoa "butter. In 1959? for example, the unit value of f Brazilian exports of cocoa beans was 74»5 T-T°s° cents, per kg., compared

with 142 cents, for cocoa butcer^ allowing for a loss factor of one-third, the equivalent export value of cocoa beans would have t^en 99 cents, per kg., or only 70 percent of the unit value of cocoa butter exportse

Taking the trade in cocoa beans only, the main African producing countries supply some nine-tenths or more of the imports into the United Kingdom and Continental Western Europe (Table 10). The United States -

the main market for Latin American cocoa - took only little more than half its imports from Africa in 1958-60, but this proportion must have increased significantly in 19ol/62. The proportion of African cocoa in total imports by the centrally-planned countries in 1358-60, at two-fifths, was also

considerably lower than that for Western Europe, where trading ties and

fiscal imposts, where applicable, favour the African product.

THE L0NGBR-T5RM OUTLOOK

The consideration of the working of existing national stabilisation schemes, and of a Tossible new international agreement, needs to be n.ade against the background of some assessment of future trends in the world

cocoa market. In this section, the j.robabla trends over the coining

decade in world consumption and production are discussed. In order to

assist the discussion of the results, these are given in quantitative form for a period about the year 1570; but it should be emphasized that the figures are inevitably subject to a fair margin of error.

Consumption. As already indicated, a nun-ber of studies have been made of how cocoa consumption reacts to changes in income and prices.!/ As regards the former, the income-elasticity of demand tends to fall off

as average incomes rise, but even in low-income countries, the income- elasticity is unlikely to reach unity.

l/ See, for example, the discussion in The Cocoa Situation, ££. pit.

-9-

For low-income countries, the elasticity can 'be taken as about 0.8, while in high-income countries like the United States, Britain and Canada it is virtually zero. Continental Western Europe appears to "be in an intermediate position, with an income-elasticity averag ing about 0.3^

The reaction of consumers to prico changes appears to have a more important effect on cocoa consumption than their reaction to income changes. Variations in demand for cocoa at J;he "bean, stage depend both on the reaction of consumers to changes in the retail price of chocolate and other cocoa products,, which has "been discussed earlier, and also -on the elasticity of substitution "between cocoa

"beans and other ingredients in the production of chocolate , etc.

A recent estimate was that from 1953 to i960 the increased usage of fats in manufacture had substituted for the equivalent of 80-90 thousand tons of cocoa "beans l/. Tiie price-elasticities of demand for cocoa beans at the grinding stage have already "been discussed, and these can reasonably "be used to estimate tho probable future trend,,

The estimates, given in Table 11, depend in the main on alter native assumptions about the world price of cocoa in 1970; this is taken at 30 cents per pound for the lower consumption estimate, and at 18 cents per pound for the higher estimate 2/, The former estimate also assumes a lower rate of growth in real income per head than the latter. World consumption of beans at the grinding stage outside the centrally-planned countries is estimated5 wn these

assumptions, to increase from 0.8l million tons in 1957-9 (annual average) to 1.08 - 1.27 million tons in 1970, an increase of 33 - 37

percent. Cocoa grindings in Eastern Europe have been increasing considerably in the last year or two, and a much larger increase could occur in the next decade. There is, however, no basis for any reliable estimate;; here it is assumed; arbitrarily, that in 1970 the total for the centrally-planned countries might be in the range of 120 - 200 thousand tons. On this basis, the world total would be higher than the 1957-59 average by 0.3 - 0.6 million tons

(about 40 - 70 percent). J>/

l/ The Cocoa Situation, op, cit., pp. 8 - 9*

_2/ These prices correspond to 66 cents and 39*5 cents per kg-,

respectively.

_3/ The estimates for 1970 represent increases of 10 - 35 percent

above the forecast 1962 level of 1.08 million tons (see Table 4).

-10-

Production, The potential output in 1970 is largely determined

"by existing plantings% Insufficient details of the age-structure and varieties of existing plantings are available, on which a pre cise estimate could "bo made. However? the largo increase in plantings in recent years in Ghana and, to a lesser extent, in

Latin America, indicate that the industry's total capacity must increase substantially in the later 1960's. Moreover, the increase achieved in cocoa yields through spraying campaigns, fertilizer application and shade reduction could "be extended in the future.

Though potential output will undoubtedly grow substantially, the actual level of output will depend also on the world cocoa

price, insofar as this is allowed to influence the price received

"by the cocoa farmer, and the extension programs for yield improve

ments. No calculation in this field can pretend to accuracy, in view of the many imponderables involved, tut it seems likely that world production "by 1970 will "be at least 1.3 million tons (one- eighth above the record 196O/6I total), and it could be considerably

higher than this.

The consumption estimate for I97O also contains a fair margin

of error, .as already indicated, particularly in the estimates for

the centrally-planned countries. If the increase in production

is significantly greater than is envisaged here - as might be the

case - or if the imports of the centrally-planned countries are

substantially below the figure assumed, this would imply a surplus

position on the world cocoa market in 1970.

NATIONAL STABILIZATION POLICIES

The present cocoa marketing schemes In Ghana and Nigeria havo their origin

in the Control Board which was sot up during the last war" to handle 'all

shipments and sales of cocoa and to decide general matters of policy. Under the wartimes arrangements, the actual "buying of cocoa, va.: left in the hands of"

private traders, acting as agents of the Bo' rd, 'Farmers wore- paid a fixed price for thoir crop, at a rate that ras maintained throughout a season. The original purpose of .the Control Board vras to support tho economies of the British West African countries in a period wlion thoir major export crops could, not find a ready outlet. But in its operation the scheme al'so provided a stabilised price for the farmer, who found this of great benefit, .

After the war, marketing "boards wore set up in the main British cocoa

producing countries, to purchase cocoa for export at fixed prices for the farmer.

The "boards wore also responsible for grading and marketing of cocoa, and for assisting the general development of the industry. Those boards have continued in "broadly the same form after the achievement of independence in tho producing countries.;; the major changes in structure In recent years havo "been tho

formation of the United Ghana Farmers1 Council, to "buy the crop from producers, and the establishment in Accra of an origin market for Ghana1s cocoa crop.

There'has, however, "been a major change in the policy objectives of tho marketing "boards in. recent yoars. In the early post-war period^ the main purpose in view was to insulate tho producer from.the sharp price fluctuations in tho crop.and from speculation. To' achieve this objective, tho marketing

"boards' did not' raise the producers', price in lino with the increase in tho world price, so "building up substantial monetary Ecoorvcs, The justification given for this was that these reserves cou'ld be available to support tho price to tho producer should the world price fall.

In roccnt yer.rs, however ? tho rr serves havo tended to bo used to support tho general economic development of tho producing countries, rather than to support the price guaranteed to tho cocoa farmer. In Ghana, for example, the export duty raid local tax proco ds on cocoa represented only 6 per cent of

the total proceeds of tro marketing board In the 1949/50 season, and 20 per cent in the 1950/1 season. The proporti-n of proceeds taken by tho public

authorities rose to almost 5^ PC*1 cent in 1954/5 ? ^nd. though it fell off sharply with tho fall in total proceeds in 1955/6 and 1956/7j i"t remained at 40 per cent or rather less in tho two subsequent seasons,'up to 1958/9? "the latest year

for which this information has been published. In Kigoria, too, tho share of proceeds taken by tho public authorities, though lower than in Ghana, has

also risen since tho mid-1950's (see Table 12),

12 -

The workings of the marketing schemes in more r:.cont years can "bo followed "by comparing the price guaranteed to tho farmer with the export

unit value in the main producing countries (Table 13). In Ghana, tho

producers' price has been rodu'cod in successive seasons sinco 195& "s £■ result ^ of the fall in the world price. In I960, tho price to tho producer was m

ono-quartor lower than in 1956, when export unit vrlucs wore tho same as W in 1960s but whereas in 195'6/7 the marketing board made a loss (see Table 12)

in 1959/60 it made' a surplus. In Nigeria, the producers' price was reduced from 37.7d. per kg. in I959/6O to 26.4d. poi kg, in January, 196I' while tho guaranteed price for tho current ao-ason (1961/62) is 23.6d per kg,

T'Jhilo the cocoa farmers' incomes have boon curtailed, the fall in export price's has also seriously depleted tho reserves of the Western Region marketing board.

In tho French overseas territories, a system of caissos do soution

(support funds) was sot up during tho war, but attempts to introduce price

stabilisation schemes in the early post-war period woro ineffective, largely because prices wore rising. In 1955? however, a group of caisses do

stabilization (stabilization funds) was set up for the various territories,

and a National Equalization Fund for Overseas Products was created to grant loans to any caisso do stabilization which had inadequate financial resources of its own. The caisses operate by fixing a minimum producers1 price.

Hhen tho world price exceeds this minimum,' tho caisses take a percent

of the difference, which is put to reserve. Tho reserve fund is available to supplement the producers' price when tho world cocoa price is low.

In tho Ivory Coast, tho minimum price has boon maintained at about 70 per cent, of the f.o.b, price for a given quality. The export unit value, however, has

varied considerably in recent years, not only as a result of fluctuations in the world prico, but' also because of large variations in tho quality composition of cocoa exports.

In 1955/7? fox- example, only 13.5 Pcr cent, of cocoa exports from tho Ivory Coast wore classified as 'superior1s whereas by 1959/60 tho proportion was

almost 79 per cent. In the Caueroun Republic, the guaranteed price fixed for

the current season (1961/2) is 6 per cent below that for 196O/I, compared

with a decline of 26 per cent " in"the Ivory Coast.

S01-IE POLICY CONSIDERATIONS National price stabilization

In the general field of national price stabilisation a dual-purpose policy appears to have emerged in rccont years in the cocoa producing .countries. The major objective has been to find financial support for

general economic development schemes from the reserves accumulated by the cocoa stabilization funds. At the sane tine, the price paid to the

producer, though not a stabilized one, in the s^nse of remaining fixed from one soason to the next, has generally been maintained within a given season, and has fluctuated much loss over time than the world price.

These .two policy oljectivos can be pursued, with greater or lesser success, in a period when cocoa prices arc generally tending to rise.

In such a period, as from 1956 to 1958? there will be a net financial gain to the stabilization fund even though the world price fluctuates from season to season. The producers' price can be maintained, while tho

reserves are increased (part or all of tho increase being available, if

necessary, for general development purposes). When the world price is generally on a downtrend, however, the two policy objectives tend to come into conflict with each other. A decision then has to be made whether to abandon price stabilization or to reduce the funds available for general economic development. In practice, the decision also Involves tho

allocation of the total reduction in revenues between tho cocoa farmers and the national budget. A rccont example of such a decision is the allocation of 10 per cent of the producers price In Ghana for the compulsory purchase of ITational Dcvelopcent Bonds, redeemable after 10

years (effective as from October, I961).

For tho successful operation of a scheme to stabilize the producers' price, it would be necessary cither to abandon the other policy objective, of financial support for general economic development, or to have a

relatively stable world price. The advantage of the latter would bo that Governments of producing countries would still bo able to pursue a dual policy objective, but within a framework In which a more rational allocation of resources between the cocoa sector and the rest of the economy could be worked out. Any attempt to stabilize the world price would, of course, need the close co-operation of the major producing and consuming countries.

- 14 -

International price stabilization

The F.A.O, Cocoa Study Group is currently examining a draft for an international cocoa, agreement, one of the nain objectives of which would

"bo to prevent excessive fluctuations in the world price of cocoa. The moans envisaged to do this arc the adoption of export quotas by the cocoa - producing countries which arc signatories to the agreement whenever the world price falls below a certain level to bo determined by an International Cocoa Council. This Council would bo specially set up under the proposed agreement to administer the export quota scheme, as well as to carry out the othor provisions of the agreement, including the adoption of measures to facilitate the expansion of consumption.

A price support scheme of this type should bo quite feasible for a commodity like cocoa, the production of which is highly concentrated in relatively few countries. This considerably reduces the chance of an

agreement breaking down by one or a few countries breaking the export quota limitations, or by producing countries not in the agreement expanding their sales to capture a larger share of the export market. The danger rather lies in manipulating the market so as to keep the price at a high enough

level to induce further substitution by edible fats and othor materials

against cocoaj and'which, at the sane time, encourages a further expansion

of the industry's capacity beyond the potential size of the world market.

It would seem important, therefore, that together with a system of export quotas, measures should be considered for encouraging the consumption of

cocoa and cocoa products (in- low-income countries as well as in high-income ones)| and for developing on a wider scale a scientific approach to

production problems so as to increase yields and reduce costs. Such measures would help to keep the world price down to levels which would

discourage substitution at the factory stage and stimulate consumer

expenditure on cocoa products.

Ta"ble

pre-war and 1952-61

Period Production

(2)

Consumption

Nef'change in stocks

(3.)

Cocoa price (Now York,

spot Accra)

(4)

Thousand metric tons Index

1935 - 1955 - 1956 - 1959 -

1959 i960

■ 1961 1962

39 ,

55 58

61

732

793 836 1034 903 1034

1165 1184

12 100

105 130

114 130

Ml

149

676 757 850 928

854

917 1013 1097

Index

89

100 112

m

113 121

145

+ 49 + 28 - 22 + 96 + 40 +107 +140

+ 75

IT. S. cents per l"b, Index

44.1

34.1

29.2

36.6

28.4

22.6 •-■

100

n 66"

81 ii

Sourcess Cacao, Commodity Bulletin, Ho. 27, F.A.O., Rome, 1955?

The Cocoa Situation, F.A. 0. Cocoa Stud;;/ Group, March, I96I5

Cocoa Statistics, Vol.5, No.2, April, 1962, F.A.O. Rome.

(1) Crop years ending middle of year shown.

(2) Calendar year consumption (grindings).

(3) Allowing for 1 percent loss in weight.

(4) .Average for period shown.

Table 2 Annual fluctuations in. quantity, unit value and value of cocoa

boan exports from selected countries, 1957 ■ 61

Change from previous year

Ghana

Nigeria

Quantity Unit value

Valuo

Quantity Unit valuo Value Ivory Coast

Quantity Unit valuo-'

2/

Value -'

Camcroun Republic

Quantity Unit value-1'

2/

1958

-24 +62 +23

-35 +59

+ 3

-30 +29' -10

1959

+27

-14 + 9

+63

-12 +43

+37 + 3

+41

i960 ,

Percentages

+21 -18 - 1

.+10 -18 -10

- 1

-17

■ --18

19611/

+27 -21 0

— 1 -10 -11

,4103 -23

■ +57

+ 2

+45

+48

~ 2

-16 -18

+10 -21 -13

+14 -25 -14

Sourcess Cocoa Statistics, Volume 4> No. 4- October, I96I, F,A,O., Eorao|

external trade statistics of Ghana and Nigeria? Lo Cacao, Documonts ct Statistiquos, No. X3SIX, November, 196I, Institut National do la

Stntistiquo ct des Etudes Economiquos> Paris,

l/ For Ghana, Jan. - Au'g, s Nigeria, Jan. - Mays Ivory Coast, Jan - ^ Camoroun, Jan. - Aug. Percentages show changes from corresponding periods

of I960.

2/ In terms of dollars or sterling*

Cocoa export's as proportion of

TT _ , j. t / Total exports Gross national World cocoa exports 1/* —' of each country _2/_ . , o/' product ^j «+ o/''

1936-38 1953-55 1959-60 1958-59" 1958-59

Ghana Nigeria Ivory Coast Cameroun

39

14

7

4

31 13 9 8

Percentages

32 68 ' 15

17 22 3

7 31

7 41

Sourceas Cocoa, Commodity Bulletin No. 27, F.A.O,, Rome, 19551 Cocoa Statistics Vol. 4, F.A.O., Rome, I96IJ Yearbook of International Trade Statisticg., United Nations, New York, 196O5 Yearbook of National Accounts Statistics

I960, United Nations, New York, I96I.

l/ In terms of weight.

2/ In terms of current values. ....

Taole 4• uoooa u^azi &*■m-h^m^^ u.

United States Canada

United Kingdom

European Economic Community Belgium-Luxembourg

France

Germany (west)

Italy - ■ ■ ■ .

Netherlands

Other western Europe

Eastern Europe (incl. U.S.S.JU

Oceania

Rest of world

1934-38.

243 12

91

166 9

.. 43

46^

9

59

45

) 62 4/

8 49

1956-58

Annual"

1959

Averages

I960.

Thousand metric tons

244 13 100

254 10

56 95

24 69

65

44 12 138

205 12 74 256 10

50

95

27- 74 66

■ 65

14 162

219 13

75 289

14 53 109 .. . 28.

85

- 72.

71 15 163

1961^

245

14 82 325

14

60 118 . 33 100

79 78 15 175

1962^

265

14 97

348 15 64

124

35

110

82

85 15

191

TOTAL 676 850

854 ^{917 1 013 1 097}

Sources Cocoa Statistics, Vol. 5 F.A.O., Rome, 1962 l/ Estimate,

2/ Forecast by the Statistical Committee of the Cocoa Study Group*

Excluding approximate estimate for areas now in Eastern Europe.

Including approximate estimate for Eastern Germany.

Consumption per headr-of- cocoa "by main, importing areas

1934-38

pre-war and 1953-60

Consumption per head

1955-55 1956-58' 1959-60 1953-55

Indices

1956-58... 1959-60

United States United Kingdom European Economic

Community

Other Western Europe 1

1

1

0 .88 .72

.02

•57

: 1.53

2.14

1.05 0.61

kg.

.1.60 1 . I.90

1.30

0.71

1-57

1.63

1.25 0.82

1934.-38 .- 1.00

81 83 83

124 110 95

103 127 123

107 ■ 125 -~ ~ 144 Other importing coun

tries (excluding centrally-planned ..

countries) 0.07

0.' 0.09 0.09 114

Total of abwve

Centrally-planned countries

Total

0.54

0.25

0.51

0.13

0.55

0.16

0.53

0.24

94

0.48 0.44 O.48 O.48 92

1.2.9.

102

64

100

129

100

.Sources The Cocoa Situation? op. cit.

Table 6 Major cost elements in chocolate production in selected countries

1954 and 1958 ■

Country and. industry Year ■ Cocoa Other ■ Ttfage-s Gross Total

boans materials and Margin (soiling

and Salaries price)

fuel - ■ ■ ■ ■

United States Chocolate and

Confectionery

cocoa products

products

1954 1958

1954 ■ 1958

52 40

ioi/

Percent

31

29

42

45

ages

8 9,

46

19

11 20

26

100 : 100

100 100

United Kingdom2/

Cocoa and chocolate confectionory

1954

1958

²⁷18 39

47 14

17

20 18

100 100

Netherlands

Cocoa processing

1958 ' 5c ₂₅

100

Australia

Confectionery (including)

chocolate and icing sugar

1957/ 12 . . 50 _•19

19 ¹⁰⁰

Sourcess U.S, Census of Manufactures, 1958, Washington, I96O5 Census of

Production, Final reports, 1954 and 1958, London; . Secondary Industries, 1957-58, Commonwealth Bureau of Census and Statistics, Canborra, I960.

l/ Chocolate coating,

2/ The percentages arc estimates, allowin'g for sales of intermediate products (milk crumb and chocolate courvorturc), within the industry, and for changes

in stocks of cocoa boons and other materials. For 1958, the estimate for cocoa "beans is based on changes in cocoa bean consumption between 1954 and

1958 recorded by members of the Cocoa, Chocolate an& Confectionery Alliance,

and changes in tho import unit value of cocoa boans.

« - -Country-

*="•* ... ■;

Austria Belgium

Denmark

Finland

Prance

Germany (West)

Italy

Netherlands ITorway

Sweden

"Switzerland

United Kingdom

consumption in Western

Chocolate Retail ,

p.rice=/

U.S. cents 140

123

220

290

119 140 181 148 253 196 129 113

Total,

tax ?J

per kg.

22

16

84

152

15

16

58

17 133 59

"T

3-

Tax as proportion of retail price

Percentage 15.8

13.0

38.2

52.0

12.5

11.5 31-9 11*4 52.3 30.0

5.1

■-^

Europe in 1957

Cocoa

consumption per head

E&- . . 1.5 1.9

1.3 0.4

1.3 2a 0.4

2.6 1.1

1.4

3.1 2.0

Total consumption Actual Hypothetical

change 2/

Thousand metric tons

3-0.6 "}

17.5 ) )

6.0 )

+ 5

1.7 J.

: 59.0 113.2

19.9

⁺²⁴

, 29.o J .

3.7 "

10.6

15.9

104.1

.+ 6

Total of above 391.2

+35

Sources t O.Haavardsholm, Chocolate consumption and the effects of taxes on that. - consumption, a Paper road "before the Fourth Cocoa Conference, Roao, I960, -' Estimated price for chocolate of specified composition (62.5 kg, of cocoa

"beans and 50 kg. of sugar per 100 kg. of chocolate).

2/

~< Including taxes on sugar.

-/ Change that would occur if all taxes on chocolate were abolished.

Table- 8 Ghangos in cocoa, production, 1953-

Country

Ghana Nigeria

Ivory Coast

Camoroun Republic . Othor Africa

Brazil

Othor Latin America Othor countries

World Total

1953-54

238 105

57

54 38 148

139

10

790

Sources Cocoa Statistics, Vol. 59

1958-60

'264

127

54 63 51 ' 178

*149

16

902

19'62, F.A.

I96O-62

Thousand

390 186 80

69 57 167

160 19

1,128

0, Rome,

Annual Av

Change 1953-54 to 1958-60

Metric Tons +26 +22

- 3

*9

+13 +30 +10 + 6

+112

orages

from

1958-60" to ,

1960-62

+126

"+ 59

+ 26

+ 6

+ 6 - 11

+ 11 + 3

+226

l/ Crop years, ending in middle.of year shown

countries I95'5'-'60 -'•■'■■ -■- ■ -

Country Cocoa froans Cocoa product

s-^

1953-55.-3l?56-58^ "1999-60

Ghana Nigeria .

Ivory Coast Camcroun

-Total Africa

Brazil

Dominican Republic Ecuador

., Total North nncU/

Central America—' Asia and Oceania

222

99

67

55 488

117 23 26

234

115

63 51 511

113 22 26 203

10

Thousand motric tons

281 151

63 56

607

102

24

32 202

13

8

20 10

32

33 10

46

13

57 11

70

TOTAL 708

725

^{822 40}

54 84

Sourcog Cocoa Statistics, F.A.O. Rome,

l/ In terms of "bcan-cquivalcnt.

2/ Latin America and the Tost Indies Federation.

. ■ - ■ - ...

Exports from Exports to

*

United States Unitod Kingdom

European Sconomic Comm,

Other T7cstorn Europe .Other, main importing .

countrios.2/

Total of abovo^/

Centrally-planned countries

Total

Ghana

56 41

112

14 10

239 "'

15

254

Sources Cocoa Statistics, F.A,

1958- 60

Africa Nigeria Ivory

Coast

Thousand metric 26

45 51

1 3

127 3

130

6, , Rome.

14

_

36

-

_

•■■52"

6

58 .

u.

Camcroun

tons

5

-

34

-

—

51

5

56

Lat in America

86

4

36 1 1

137 19

156

Total

186 88

269

16 14

60 5

48

653

African total

54 98

87 91 91

77 61

31

l/ Exports from Brazil, Dominican Republic and Ecuador only.

■2/ Australia, Canada, end..Japan. .. . . .

$/ Including some cocoa to destinations not shown soparatcly.

Tpt.nl cpcoa .grindings in 1957 - 9 and estimates for l_97O

■Thousand.metric tons

1957-59

¹⁹⁷⁰

Change from 57-59 to moan of 1970

estimates 1/

United States

Unitc.4 Kingdom

European Economic Community Othor Western Europe

Other main importing

countrics_2/

Total of above -

Rest of world (excluding

d.. countries,

211

82 261 69

34

656"

152

Low

272 92

347

90

47

848 229

High

305 110

416 108

55

994 276

+ 75

+ 20 +120

+ 30 . s ...

+ 20

+265

+100

Ccntrally^planncd countries

5.8 (1201 (200) (+100)

TOTAL 866 120 1470 +465

Source; Cocoa Statistics, F.A.O., Rome.

1/ Rounded to noaroBt 5,000 tons.

2/ Australia, Canada and Japan.

Tablo 12 Variations in local tares and marketing board marginb in Ghana

and Nigeria'

1952/3

1954/5

to

1956/7 1957/8 ' 1958/9 *

Ghana

Proccods of cocoa sales (8 mill,) 195

Percentage of proceeds Export duty and local taxes Marketing board's margin

Nigeria (Western Region)

Proceeds of cocoa sales ($ mill.)

Percentage of proceeds Export duty and local taxes Marketing board1s margin

42,

2.

142

24 -13

67

13 3

176

42

J3"

60

19 22

199

36

12

104

20 26

Sourcoss Twelfth Annual Report and Accounts, Ghana Cocoa Marketing -Board,' Accra,

I96I5 Annual Report of-the Tfo stern Rogi on..Markot ing. Board*. Dopt*. of

Marketing and Exports, Lagos, I96I.

Year

1952 1953 1954 19551956 1957

1958

1959I960

Export unit value

68.1

108.7 65.3

60.0

87.7 53.9

87.0 75-7

6O.4

1952-54 +60 1954-56 -45 1956-58 +45

1958-

^{60 -31}

Ghana

Price to producer

41-1

35.9 36.4

39.4 41.2 38.6

36.4 32.9

30,8

-11 +13 -12

-15

prices p aid to cocoa producers, 1952 -

Difference Export

27.

29.

48-.

72*.

13.

15.

50-.

42.

29.

+167

- 74

+16 9

- 42

Sources: Cocoa Statistics, London 3 Le_ Cacao

1

4 3 8 63 8 6

F.

et

unit value

U.

68.

110.

65-

81.

56.

53-

84.

73.

62.

+60 -49 +49 -25

.S.

.9

■5

,0 .6

■4

,1 ,2

-9

.8

Nigeria

Price to producer

cents per

47.5 47.5

53.1 55.0 51.5 41.9

41-9

42.1 44.0

Percentages

A.0., Rome ses Dt

+12

+ 5

1 Market

Difference

kg.

21.

18.

56.

26, 4.

11, 42.

31", 18.

+166

— 91

+765

->b

.4 ,0 .9,6 .9 ,2 -4■ 7 .3

60'

Ivory Coast

Expori: Price unit producer value

70.3 62.8

95.8

84.O

63.4

51.366.0 63.0

56.5

+36 -34 + 4 £/

a #

■ *

40.0

40.5 42.9 38.5

28.6

m #

/ * •

/ + 7

-33

Intelligence, Messrs.Gill drives dans lcs Pays do la Zone franc,

to Difference

1

..

23-4

13.5

23.1

29.5

28.0

• •

. .

- 1 +21

and Duff ss November, 1961, Paris.

l/ Price in crop year "beginning in year shown.

2/ In terms of local currency, export unit values rose- by 50 percent "between 1956

and 1958, and fell by 24 percent "between 1958 and I960.