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Top Cocoa Producer Weighs Increase in Bean Quality Premium

Apr 30, 2020

Ivory Coast is weighing an increase in the premium that it charges for the quality of its cocoa to as much as double the current margin, according to three people familiar with the matter.

The world’s top cocoa producer will raise the country premium, also known as the origin differential, to a range of 150 pounds ($187) to 180 pounds per ton on top of futures prices, from a current guide of about 90 pounds a ton, said the people, who asked not to be identified because a public announcement hasn’t been made. The hike could be implemented at the end of May or early June and levied on new forward-sale deals for the next harvest that begins in October, said the people.

A spokesperson for the regulator declined to comment when contacted by phone.

An increase in the quality premium will follow less than a year after Ivory Coast and neighboring Ghana, the West African neighbors that account for more than 60% of global output, implemented a differential of $400 per ton to improve the income of farmers. Their dominance has given traders little choice but to agree to the increase, even though the hike has been partially offset by discounts on other charges.

Ivory Coast has improved the quality of its beans compared with some other producers such as Nigeria and Cameroon, justifying the increase, said one of the people. The country has also increased its warehousing capacity and will store beans if buyers initially refuse to conclude deals at the higher price, said the person.

London cocoa futures have slid from a peak in February as the coronavirus outbreak impacts chocolate demand. The worldwide processing of cocoa is forecast to drop for the first time in four years, according to Olam International Ltd.

Cocoa for delivery in December rose 1.3% to 1,718 pounds ($2,137) per ton at 4:25 p.m. in London on Wednesday.

 

Credit: Bloomberg

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