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3.3 The International Cocoa Market and Fair Trade
15
British Association for Fair Trade Shops, “Cocoa”.
4-14
Fair Trade: Overview, Impact, Challenges
Annex 4: Case Study - Cocoa in Ghana
BAFTS 15 identifies several key issues about the operation of the international cocoa
market from a FT perspective:
♦ The low level of prices following the breakdown of ICAs.
♦ Domination of the market by transnational corporations with EU and US support.
♦ Processing and storage takes place overwhelmingly in the North.
♦ Discriminatory EU import taxation against processed cocoa.
♦ Threat of changes to EU legislation to allow for greater use of cocoa fat
substitutes in chocolate production.
♦ The need for WTO to take action to stop speculation and price fluctuations.
♦ The low proportion of the world price of cocoa products that cocoa producers
receive.
Internationally, there is concentration amongst cocoa processors and chocolate
manufacturers, and significant speculation takes place in the international cocoa
markets. Furthermore, the way in which industrialised countries manage their trade
regimes for cocoa and cocoa products gives rise to tariff escalation. For example, the
tariff on imports of cocoa beans, cocoa butter and cocoa powder into the European
Union are 1.5%, 9%, and 12% respectively. Finally, as with many other agricultural
commodities, demand for cocoa is subject to substitution by other commodities. A
particularly high profile example of this, which has been championed by the FT
movement, has been the debate as to whether the European Union should allow the
limited use of non-cocoa vegetable fats to substitute for cocoa butter in the
manufacture of chocolate.
However, the following points can be usefully made in relation to the arguments
advanced by the advocates of FT.
♦ It would be difficult for even the largest trans-national companies to manipulate
commodity markets and control commodity prices on a sustained or long-term
basis. The principal points of reference for agricultural commodities such as
coffee and cocoa are near dated futures contracts traded on markets in London
and New York. The volumes of coffee and cocoa traded on these futures markets
are many times higher than the volumes traded physically in spot markets around
the world. The result is that even if a company processes 10% of the world's
cocoa, if it fully hedges its physical positions it will only account for
approximately 1% of the futures contracts traded in cocoa. Although sometimes
destabilising, speculators play a vital role in maintaining the liquidity of world
derivatives markets which allow market participants to manage price risk.
Potentially, this opportunity exists for farmers (indirectly through market