Summary
To date the demand effects of the covid-19 pandemic have had the greatest effect in the cocoa sector, with the pattern of retail closures hitting the craft chocolate sector most severely. As the pandemic takes hold in West and Central Africa more supply problems could emerge, particularly given recent and projected falls in cocoa prices. This will place increased pressure on already poor and economically distressed households, where an increase in the use of child labour in Cote d’Ivoire has recently been reported. Any moves to address child labour and environmental sustainability concerns will need to address price instability issues and ensure improvements in the net income position of cocoa farmers if they are to be sustainable in the long term.
There are two dimensions to the impact of the Covid-19 pandemic on the cocoa sector, namely via its impact on the supply side and its impact on the demand side.
Initially it was feared supply chains disruptions in major cocoa producing countries could seriously constrain supplies. However, this is not currently the dominant trend, with industry wide initiatives in the main cocoa producing countries having been successful in ‘implementing health guidelines from governments and health authorities’ and also in optimizing ‘local networks and digital tools to deliver technical help, provide funding for emergency response and honour long-term relationships with farmers’ (1).
Overall, it is held that except for a short two-week period at the beginning of the pandemic ‘the cacao sector has not had any supply chain issues in West Africa due to COVID-19’. This being noted although the sector has avoided the effects of the global imbalance in containers, ‘forwarders are sailing less frequently or excluding ports due to reduced demand for goods’ (2). This could potentially lead to some lowering of the quality of delivered cocoa beans, with this being an issue for exporters, who will need to play close attention to maintaining post-harvest quality, as a buyers-market emerges in the face of a growing surplus of supply over depressed demand. However, as the pandemic takes hold in West Africa the situation regarding supply side problems is likely to intensify.
In terms of the demand side, the effects of the Covid-19 pandemic have bene more immediate. While the craft chocolate sector suffering major disruptions (see companion epanmonitoring.net article ‘Craft Chocolate Sector Bears Initial Brunt of the Effects of Covid-19 in the Cocoa Sector’, 28 July 2020), mainstream chocolate consumption being stable. This has seen forecasts of ‘a reduction in grind of -5% for the second quarter of 2020 and -3% in the third quarter’.
This will create a situation where ‘the supply of cacao will become higher than the demand’, with a further downward pressure on prices then emerging. Between February and 2020 prices of cocoa beans fell 16.5% (from $2.72/kg to S2.27/kg), with only a partial recovery through to May of some 2.2%, leaving prices 15% below February 2020 levels. This halted and reversed the recovery which had been underway in cocoa bean prices since August 2019, when prices were at a low of $2.19/kg (3). Any further price declines linked to depressed grindings could then create a long-term problem of supply, as cocoa farmers fall deeper into poverty and inter-generational renewal of the cocoa farming community is set back.
Analysis from the CBI suggests ‘in the longer term Corporate Social Responsibility (CSR) will probably become an even more important market demand’. It is held ‘more people are becoming aware that virus contamination risks increase due to the cutting down of forests and trafficking of exotic animals.’ In addition, there are growing climate change concerns and increasing demands to end child labour. This, it is held, could lead to a situation where ‘choosing a sustainably produced chocolate bar’, is placed on a par with behavioural changes such as flying less, installing solar panels, and eating less meat (2) (see companion epamonitoring.net article, ‘What Options for Strengthened EU Regulatory Requirements Would Best Serve the Interests of African Cocoa Farmers?’, 16 July 2020).
It is argued major confectioners ‘need to take a lead in increasing their sustainability offering’, with this sitting uneasily with the immediate economic trends towards lower priced chocolate offerings in response to the depth of the economic recession the Covid-19 pandemic has given rise to in major chocolate consuming markets like the EU (2).
Unfortunately, the effects of the Covid-19 pandemic are beginning to demonstrate just how fragile the progress in addressing key sustainable production objectives can be. A July 2020 assessment from the International Cocoa Initiative’s Child Labour Monitoring and Remediations Systems network ‘revealed a “sharp rise” in hazardous child labour between 17 March and 15 May’ in Cote d’Ivoire in the face of the impact of the Covid-19 pandemic (4).
This review found that of the households surveyed (1,443 households within 263 communities), there had been a ‘21.5% increase in child labour…compared to the same period in previous years.’ This trend was attributed to three factors: ‘the closure of schools’, ‘restrictions on movements’ and hence a ‘lower availability of adult labour’, and the ‘constantly evolving economic environment’, including lower cocoa prices (4).
It was identified how the Covid-19 pandemic may have induced ‘a decrease in household income since the beginning of lockdown’ and how ‘negative income shocks generally tend to increase child labour’. The ICI argued that in looking forward it was important to clarify the impact of the Covid-19 pandemic on vulnerable cocoa producing households in West Africa so as to better understand how the issue of child labour can most effectively be addressed (4).
The worsening of the situation in regard to the use of child labour in the context of the Covid-19 pandemic lead the ICI to call for an intensification of activities to ‘prevent and address child labour in cocoa growing communities’ (5). This needs to be seen in the context of commitments from EC President Ursula von der Leyen to put an end to child labour in the cocoa sector (6).
| Comment and Analysis Given the impact of the Covid-19 pandemic on demand, warnings from health experts over a possible recurrence of Covid-19 in its current or some mutated form and growing pressures to ensure sustainable sources of supply, cocoa companies in developing countries are being urged to improve their marketing and wherever possible take more control over their supply chain, through both movement up the value chain and greater country based product differentiation in response to mounting consumer concerns over the sustainability of cocoa production This will require a number of specific government actions (such as securing the basis for future duty free-quota free access to the UK market for value added cocoa product exports from Ghana and Cote d’Ivoire) and concerted government, farmer and local private sector initiatives to give a lead in the drawing up of ‘Voluntary Partnership Agreements’ with the EU around a Sustainable Cocoa Production Charter, with at its heart securing decent living incomes for cocoa farmers, on the basis of locally rooted efforts to end deforestation, child labour and environmental degradation can be built. Once again it appears that in any market crisis it is cocoa farmers who carry the greatest burden, through a disproportionate decline in prices in response to demand or supply chains. Thus, we find a 5% decline in the grind in the second quarter of 2020 resulted in a 15% decline in cocoa prices between February and the end of May. If moves towards ending child labour and ensuring more environmental and climate sensitive patterns of cocoa production are promoting then securing greater price stability and better net returns to cocoa farmers needs to be the foundation of such initiatives if they are to be sustainable. |
Sources:
(1) CBI, ‘The bittersweet impact of COVID19 on the cocoa and chocolate market’, 20 April 2020, CBI
https://www.cbi.eu/news/bittersweet-impact-covid-19-cocoa-chocolate-market
(2) CBI, ‘How to respond to COVID-19 in the cacao sector?’, 20 June 2020
https://www.cbi.eu/market-information/cocoa-cocoa-products/how-respond-covid-19-cacao-sector
(3) Indexmundi, ‘Cocoa beans Monthly Price – US Dollars per Kilogram’,
https://www.indexmundi.com/commodities/?commodity=cocoa-beans
(4) foodnavigator.com, ‘Child labour spikes during COVID19 lockdown in Côte d Ivoire, finds International Cocoa Initiative’, 2 July 2020
https://www.foodnavigator.com/Article/2020/07/02/Child-labour-spikes-during-COVID-19-lockdown-in-Cote-d-Ivoire-finds-International-Cocoa-Initiative
(5) International Cocoa Initiative ‘Hazardous child labour in Côte d’Ivoire’s cocoa communities during COVID-19 Rapid analysis of data collected during partial lockdown’, 1 July 2020
https://cocoainitiative.org/wp-content/uploads/2020/07/ICI_rapid-analysis-covid-impact-child-labour-identifiation_1July2020.pdf
(6) confectionerynews.com, ‘EU due diligence laws for cocoa sector could be in force by 2022’, 11 March 2020
https://www.confectionerynews.com/Article/2020/03/11/EU-due-diligence-laws-for-cocoa-sector-could-be-in-force-by-2022