Most in the cocoa industry are forecasting a massive world deficit this season mainly due to the El Nino effect, says Head of Group Research at Ecobank, Edward George. For chocoholics expect the price to rise.
The United States World Food Programme recently warned that about 100 million people are facing food and water shortages as a result of the climate cycle.
West Africa produces most of the world’s cocoa however the International Cocoa Organisation has raised concerns over the extent of damage the Harmattan season will cause.
“What happens in West Africa with the crop, is that every season there is a dry wind which flows, the Harmattan, and this can really reduce the output from the main crop and also stunt the smaller mid-crop,” said Edward George, Head of Group Research at Ecobank.
“What we have seen is the worst Harmattan wind in 30 years in the Ivory Coast and if you bear in mind that West Africa produces something like 70 per cent of cocoa - that means there is a real drop in production.”
George says most are forecasting a world deficit of between 100 000 and 150 000 tonnes this season.
He states that it is becoming clear that deliveries are slowing quickly in the key producing areas affecting prices.
“We have seen prices shoot back up towards the end of last year - they are way above their five year average,” said George.
“In all honesty, as we go through the seasons and we get into the period of the light crop when deliveries are usually smaller anyway - I think we should expect to see yet more price strength with cocoa.”
According to George, for a number of years the industry has been saying that there needs to be further investment in order to produce at least a million tonnes more of cocoa per year, just to meet growing demand, that works out to a 25 per cent increase.
“Cocoa is going to be one of the few commodities which is going to defy the trend of weakness elsewhere and continue strengthening unless we see a collapse in consumption - which hasn’t happened yet,” said Head of Group Research at Ecobank, Edward George.