Singapore, 18th June 2019
Dear Members, All,
The Cocoa Association of Asia would like to share with its members the recent price developments in Ivory Coast and Ghana. The below information is simply reporting what has been announced last week in Ghana. It is purely informative, there is no sort of advice of position taken by the Cocoa Association of Asia.
Following the March 2018 Déclaration d’Abidjan where both Ivory Coast and Ghana governments agreed to cooperate in finding a sustainable way to increase prices paid to cocoa farmers, the Conseil du Café Cacao together with the Ghana Cocoa Board gathered all the main cocoa market participants in Accra, Ghana on June 11th and 12th 2019. During this two-day event and supported by both governments, the two cocoa institutions announced a new mechanism of common floor price for cocoa beans.
This new mechanism, to be applied in both Ivory Coast and Ghana, has been presented as follows:
- A Floor Price of 2,600 USD/MT is defined. Below the Floor Price, no sale will be entertained.
- The incoterm is defined as “FOB basis LIFFE UK”.
- We assume this Floor Price is to be compared to market value as: LONDON Terminal Market * Forex GBP/USD.
- Any sales contract below the Floor Price will attract a Living Income Differential difference between market price and Floor Price.
- A Critical Level of 2,200 USD/MT is defined. Below the Critical Level, the Living Income Differential is fixed at 400 USD/MT.
- Quality physical differential will be added on top of the Living Income Differential.
- The mechanism is said to be applied on Main Crop only, starting for crop 2020/2021.
- It is our understanding that sustainability matters are not part of the Floor Price mechanism
Please see below a comprehensive chart based on the information given. We propose 3 different scenarios:
Scenario A: Market Value is equal to Floor Price at 2,600 USD/MT. There is no Living Income Differential, only a Quality Differential.
Scenario B: Market Value is 2,300 USD/MT, hence below the Floor Price. Living Income Differential is 300 USD/MT, and a Quality Differential is added on top of it.
Scenario C: Market Value is 2,100 USD/MT, hence below the Critical Level. Living Income Differential is capped at 400 USD/MT, and a Quality Differential is added on top of it.
The implementation of this new mechanism has not been presented in detail. There are many open questions on how this will exactly work. The Conseil du Café Cacao and Ghana Cocoa Board have set up a technical meeting on July 3rd, 2019 to address those questions. In the meantime, both institutions have halted 2020/2021 crop sales.
We will keep our members informed.
CAA Executive Committee