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By Angel Aboa and Maytaal Angel
ABIDJAN / LONDON, July 10 (Reuters) – The world's leading cocoa producers, Côte d 'Ivoire and Ghana, have imposed a "vital income differential" of $ 400 per tonne for all cocoa contracts sold by one or the other country for the 2020/21 season, says an official letter by Reuters shows.
The premium, which replaces an earlier proposal for a floor price for cocoa contracts, is part of a broader plan to fight poverty among farmers in Cote d 'Ivoire and Ghana, who together represent more 60% of the world supply.
Ghana's cocoa and Cote d'Ivoire is already trading at substantial premiums over the futures market because of its quality.
Chocolate makers, including Mars, Olam and Hershey, told Reuters that they support efforts to alleviate farmer poverty, but that the plan could lead to excess production and could potentially spur them to look for more sources of supply.
The West African neighbors announced last month that they would set a minimum price of $ 2,600 per ton of free on board (FOB) chocolate manufacturers will have to pay from the 2020/21 season s & # 39; They want to access their cocoa.
Cocoa prices on ICE Futures Europe reached the highest level in a year of £ 1,249 ($ 2,424) this week, amid confusion over a plan that marks the biggest upheaval in the market. cocoa for years.
PAYMENTS TO FARMERS
The funds generated by the vital income differential will be used to increase payments to farmers, with the goal being that they get 70% of an indicative price of $ 2,600 per tonne (FOB), the letter sent by both governments to trade federation said.
If market prices exceed $ 2,900 (FOB), the proceeds of the LID will be placed in a stabilization fund that will allow governments to pay farmers 70% of the target price of $ 2,600 when market prices fall.
Ghana and Côte d'Ivoire both guarantee farmers a prize at the beginning of each season.
The LID will apply in addition to normal country differentials, the letter says.
"In the short term, they will win (on the price) but how long will it take before the industry reorganizes itself and Côte d'Ivoire and Ghana have too much production to control", said a merchant based in Europe.
Ghana and Cote d 'Ivoire suspended their cocoa futures sales for the 2020/21 season last month in order to give themselves time to implement the new pricing mechanism.
Businesses gathered last week in Abidjan to discuss the project included Hershey, Mars, Blommer Chocolate, Cemoi, SucDen, Mondelez, Touton, Barry Callebaut, Cargill, Olam and Ecom Trading. (Report of Maytaal Angel in London and Angel Aboa in Abidjan, edited by Kirsten Donovan, Nigel Hunt and Alexander Smith)
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