China's Cocoa Export - Paltry Yet Symbolic

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Sunday, June 27, 2021   /06:00 AM /  By FDC Ltd  / Header Image Credit:Eye Gambia   

 

China has commenced the export of cocoa beans according to the Chinese Academy of Tropical Agricultural Sciences (CATAS)5 and as reported by the Chinese media. The first consignment of 500kg, valued at approximately $3,600, was shipped to Belgium (the third biggest importer of cocoa beans) sometime in October of 2020. To put the magnitude of China's first batch of exports in perspective, Ivory Coast and Ghana, accounting for 61.8% of total global output, produced 2,074 metric tons (MT) and 770MT respectively in 2019/20. This puts 500kg at paltry 0.01% of global cocoa beans production of 4600MT.

 

The crop was grown in the tropical township of Xinlong located in the South China island province of Hainan - the country's only tropical rainforest and the most northern location of cocoa cultivation globally. A researcher with CATAS, Hao Zhaoyun, was quoted as saying "cocoa is a raw material for making chocolate. With the increasing demand for chocolates, Hainan has been expanding its cocoa planting area and making breakthroughs in technological development".

 

Geography vs Technology

However, the tropical rainforest covers a relatively small proportion of Hainan's land mass (35,354km2). This pales in comparison to Ivory Coast and Ghana's tropical rain forests estimated at 212,000km2 and 91700km2 respectively according to the Food and Agriculture Organization of the United Nations (FAO).6 Together, that is about nine times the size of China's tropical region.

 

The cocoa crop requires high temperatures, rainfall, humidity and millions of hectares of arable land to grow - conditions found in abundance across West and Central Africa. This geographical consideration presents the biggest limitation to the scale of China's cocoa output. Its inability to significantly increase production means it is impossible to compete with the African cocoa producers.

 

China may be unable to compete with the African giants anytime soon, but the crucial lesson here is the dogged resolve of the Chinese authorities in applying technology to push up cocoa output. The breakthrough is more symbolic than the country's prospects as a potential disruptor of the cocoa bean market. The quality of cocoa also determines its attractiveness in the global market. This means that if the Chinese variant is of superior quality, it could bank on that as a competitive advantage and usurp market share (albeit less than substantial) from other players.

 

Nonetheless, technological development itself typically comes at a cost which will be factored into the price of the commodity. Modifying cocoa beans to grow and flourish in climatic conditions that are not tropical cannot exactly be ruled out in the medium or long-term. That would be a master stroke. Achieving this feat at a cost that is commercially viable would be the gamechanger.


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Tech to support Productivity

Cocoa prices are forecast to drop 4.3% in 2021 to average $2,286/ton, as global demand struggles to return amid COVID-19 and growing health consciousness. Cocoa production is also projected to witness a slight decline on account of a marginal drop in output from global powerhouses Ivory Coast and Ghana. Nigeria's cocoa production is forecast to decline to 235,000 metric tons in 2020/21 on the back of difficulties in finding labor to harvest the crop and backlogs of cocoa beans in warehouses, according to the Economist Intelligence Unit (EIU).

 

This is the second consecutive year of decline after output fell from 270,000MT in 2018/19 to 250,000MT in 2019/20 largely due to the inability of farmers to dry a significant part of the harvest as a result of excessive rainfall in South West Nigeria. The black pod disease, which thrives in damp conditions, also wreaked havoc on Nigeria's cocoa output. While technology could yet put China firmly on the cocoa map, the lack of adoption of technology in Nigeria threatens to limit productivity and dampen output.

 

The inability to widely dispense high-yield and early maturing varieties of cocoa seedlings to farmers is proving to be a major constraint as the technology is available and has been for over a decade. This modified variant also has a greater degree of resistance to diseases while requiring less use of agrochemicals in its cultivation. Farmers have either failed to embrace it or have no access to it - or both. The use of technology to boost productivity is crucial and will support the government's goal of diversifying and deepening sources of foreign exchange earnings beyond oil & gas


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Lessons from Ghana - Political Will

The global chocolate industry is valued at over $150bn.7 However, while West Africa accounts for about 70% of cocoa beans supply, they receive less than $6bn (4%) for their troubles. This is consistent with the widely prevalent pattern of raw material export across the continent. In 2020, Ghanaian President, Nana Addo Dankwa Akufo-Addo, while delivering a speech in Switzerland, announced plans to process 50% of Ghana's annual cocoa bean production domestically and end the dependence on the export of the raw commodity.8 Ghana is steadily raising its primary cocoa processing capacity. However, the bulk of cocoa market revenue (80%) is generated at the secondary processing stage (cocoa paste manufacturing), which is dominated by Europeans and Asians. This is where massive potential lies and where African cocoa bean producers need to invest in. The Chinese could enter that market and compete favorably in the coming years. Given their reputation for research and development, and the quick deployment of technology to lower production costs, they could swiftly corner the market.

 

Lessons from Cameroon - Untapped Potential in the entire South

On a final note, Nigeria's Ministry of Agriculture believes that Nigerian cocoa bean production can exceed that of Ivory Coast. It would need to grow nine-fold for that to happen. As unlikely as that may seem, the potential for expansion of cocoa cultivation is immense and remains untapped. Cameroon, once a marginal player, has made giant strides in recent years to come into contention, overtaking Nigeria as the fourth largest cocoa producer in the world with a projected output of 280,000MT in 2020/21. While Nigerian output is largely concentrated in the southwest region, rising Cameroonian output validates the view that the entire southern region of Nigeria (particularly the south-east which shares a border with Cameroon) should have cocoa yields as high as the south-west. This could lead to a quadrupling of Nigeria's cocoa output and the Ministry's claim may not be as farfetched as it sounds after all.


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