A new international cocoa agreement granting the private sector a bigger role in international cooperation in the world cocoa economy was reached in Geneva on 2 March.
Participants in the United Nations Cocoa Conference, 2000 termed the 2001 pact much more flexible and "moral" than previous agreements, which had contained a number of economic clauses aimed at correcting market imbalances. The new agreement, they said, depended much more on the good faith and political will of the private sector in cocoa producer and consumer countries as well as of Governments.
"This agreement does full justice to the needs of all parties in the cocoa economy," said Carlos Fortin, Deputy Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), which sponsored the three-week talks last week and last November. "It is realistic, taking on board developments in the world economy and in the commodities markets", he said in a closing statement on 2 March, noting that the agreement was also open-ended and would require action to be fully implemented.
Conference President Ransford A. Smith (Jamaica) said that, while the agreement "did not contain everything that everyone wanted", it nonetheless struck "a delicate balance". Particularly noteworthy was its emphasis on the role of the private sector in supporting a sustainable cocoa economy and in encouraging the promotion of cocoa consumption. Provisions on the use of cocoa substitutes and on marketing, monitoring and transparency were important as well.
A give-and-take by negotiators also resulted in agreement between the two sides on new ways to regulate the market without relying on interventionist mechanisms such as production quotas, buffer stocks and other price support measures. Those mechanisms, said Hagen Streichert (Germany), spokesperson for the consumers, had been unsuccessful in dealing with the inherent volatility of cocoa production and cocoa markets, which was one reason why the new agreement had taken a different approach.
"The agreement changes every 8 to 12 years to adapt to changing circumstances", agreed Edouard Kouamé, Executive Director of the International Cocoa Organization (ICCO), which administers the accord. He said that previous agreements containing interventionist mechanisms "could not cope" with constant fluctuations in production, leaving both consumers and producers "stuck" by the agreement´s terms. He welcomed the flexibility of the new accord, which is slated to enter into force provisionally on 1 January 2002. "If it is honoured, it will be the best agreement ever", he added.
Definitive entry into force will require ratification by at least five exporting countries accounting for at least 80% of total exports and by importing countries representing 60% of total imports. The agreement will be open for signature at UN Headquarters, which acts as depositary, on 1 May this year.
Accord to "provide fair economic returns to all stakeholders"
Producers told journalists they were optimistic the agreement would ultimately help small cocoa farmers and contribute to environmental protection - or what the agreement calls "the sustainable management of cocoa resources in order to provide fair economic returns to all stakeholders in the cocoa economy". Producer spokesperson Lambert N´Guessan (Côte d´Ivoire) said his group was satisfied with the agreement, but concerned as to how the moral commitment it contained would be translated into action. He said a partnership was needed, focusing on the transfer of technology, so that consumer countries can help the producers improve the quality of their cocoa.
The agreement encourages new and ongoing projects, some of them to be sponsored in part by ICCO. It paves the way for the creation of farmer cooperatives aimed at increasing farmers´ income by bringing them into the marketing chain, and for research and development of new farming methods, fertilizers and nutrient additives to combat soil depletion and increase yield. In some cocoa-producing countries, where much of the soil has already been depleted by too many seasons of planting, farmers are constantly in search of new forests to clear. In the long run, this will deprive future generations of livelihood from their land. One project, now under way in 10 countries, is aimed at identifying and developing cocoa strains that are more resistant, require fewer chemicals and produce superior yields. That project is financed mostly by the Amsterdam-based Common Fund for Commodities, an international body whose creation was negotiated under UNCTAD auspices. Other projects will train farmers to sort and grade their own cocoa for export and eventually undertake their own transformation. The resulting value added could boost prices paid to farmers by up to 20%, Mr. Kouamé said.
Under the agreement, private sector participation in such projects, and in the overall management of cocoa resources on the international level, will take the form of a consultative board within ICCO which will facilitate information exchange, identify threats to supply and demand and propose actions to meet the challenges. The private sector will also be encouraged to contribute to a newly established Promotion Fund to finance promotional campaigns and sponsor research. Training in risk management techniques is also envisioned. Such techniques, as well as commodity information and diversification programmes, are already being developed by UNCTAD and other organizations.
Both sides agree on the need for increased private sector involvement to help offset declining government support of cocoa production and improve ICCO´s ability to cope with unstable markets, unpredictable weather and political crises. Although most cocoa is produced by small farmers, the market is largely controlled by a handful of multinational firms, which in some countries buy up a major part of the crop and thus keep prices artificially low. Multinationals are also, said Mr. N´Guessan in an opening statement on 26 February, guilty of "financial bulimia", trying to establish new plantations in an effort to keep supply steady and "make superprofits - and this in a period of overproduction when the producers are planning to destroy more than 250,000 tons of cocoa".
In March 2000, the ICCO Executive Committee voted this destruction as a response to low price levels. Individual destruction quotas were set for Cameroon, Côte d´Ivoire, Ghana and Nigeria, which together account for 70% of world cocoa production, but the destruction has still not been carried out due to practical problems such as disposal of the waste. The question of paying compensation to farmers for the lost crops has still to be worked out.
Cocoa substitutes debated
One of the sticking points in the negotiations was the use of cocoa substitutes in the production of chocolate, as opposed to traditional techniques which rely solely on cocoa butter, cocoa powder, sugar, powdered milk and lactic lipids. Producers are concerned that a new European Commission directive allowing up to 5% vegetable fats in chocolate will reduce demand for cocoa beans by 60,000 to 200,000 tons a year, Mr. N´Guessan said. The new agreement acknowledges that concern by stating that the use of such substitutes "may have negative effects on the expansion of cocoa consumption and the development of a sustainable cocoa economy".
Some consumers, however, argue that cocoa substitutes actually contribute to cocoa consumption, particularly in warm countries or during the summer, when chocolate produced solely from cocoa butter risks melting.
The agreement also creates a new Market Committee within ICCO, which will monitor developments and make forecasts "so as to secure an equilibrium between supply and demand". ICCO is currently projecting a production deficit of 205,000 tons in 2000/2001, followed by further supply shortages of around 125,000 tons per year in the following two cocoa years, which run from October to September. The result would be a "profound" impact on cocoa prices, ICCO says. Daily prices are now averaging $1150 per ton but will flatten out to an average of about $1130 for the entire cocoa year, according to ICCO estimates. Prices in real (inflation-adjusted) terms could increase by as much as 50% to $1730 by 2000/2003, followed by a decline in 2005/2006 to $1570. World production and consumption could both reach record heights of over 3.1 million tons by 2005/2006. Production growth will continue to be concentrated in Africa, with Indonesia likely to be the only country outside that region where growth is expected.
The conference was attended by representatives of the European Communities and 33 countries, including Indonesia, which is not a member of the previous agreement and did not attend the November talks. Other non-members attending were Costa Rica, Mexico and Philippines [according to provisional list of participants as of 28 February].
Exporting members, accounting for about 80% of world production in the 2000/2001 cocoa year are Benin, Brazil, Cameroun, Côte d´Ivoire, Dominican Republic, Ecuador, Gabon, Ghana, Grenada, Jamaica, Malaysia, Nigeria, Papua New Guinea, Peru, Sao Tome and Principe, Sierra Leone, Togo, Trinidad and Tobago, and Venezuela. Importing members, accounting for some 70% of world grindings, are Austria, Belgium/Luxembourg, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Netherlands, Norway, Portugal, Russian Federation, Slovak Republic, Spain, Sweden, Switzerland and United Kingdom.
The 1993 agreement expires on 30 September; the 2001 agreement will be valid through 2008. (For background, see press releases TAD/INF/PR04, 2874, 2872, 2871 and Corr., and 2870.)
