PARADISE ISLAND, Bahamas, - Cocoa production in top grower and war-stricken Ivory Coast will likely decrease over the next two years, leaving the rest of the producing nations to pick up the slack for global demand, Macquarie Bank's Kona Haque said on Saturday.
"Right now there's not a lot of incentive for farmers to tend to the midcrop (in Ivory Coast). They probably don't even have workers there," Haque said, while speaking on a panel at the Cocoa Merchants' Association of America conference in the Bahamas.
"We expect Ivory Coast to resume its downward trend (in production)."
Up to one million Ivorians have fled fighting in the main city Abidjan alone, with others uprooted across the country, the U.N. refugee agency said last week.
Ivory Coast produced a huge crop in the current 2010/11 crop year because of ideal weather conditions produced by the La Nina phenomenon, although an export ban has tied up what many estimate to be 500,000 tonnes of beans at the ports. The ban helped lift U.S. cocoa futures to a 32-year high at $3,775 per tonne last month.
Soldiers of Ivory Coast's rival leaders battled for the main city Abidjan on Saturday, as advancing soldiers backing Alassane Ouattara, who U.N.-certified results show won a Nov. 28 presidential election, met stiff resistance from fighters loyal to incumbent Laurent Gbagbo, who has refused to step down.
CHALLENGE TO THE INDUSTRY
Many in the cocoa industry feel the conflict is near an end, although it will take a while for exports to resume, analysts said.
Haque projected the average price of the benchmark cocoa contract on ICE Futures U.S. in 2011 will be $3,075 per tonne with a decline to $2,807 in 2012.
"I think prices are going to have to stay at this level to incentivize production outside of the Ivory Coast," Haque said.
Ivory Coast grows roughly 40 percent of the world's cocoa, the key ingredient in chocolate, while 70 per cent is grown in West Africa
Haque forecast 2010/11 will see a global surplus of 149,000 tonnes of cocoa with a balance in 2011/12.
"After four straight years of tightness, the 2010/11 surplus will be short lived but stocks will build," she said.
Keith Heffernan, head of research at Armajaro Trading Ltd, estimated chocolate consumption will rise by 3 percent in 2010/11.
"However, strong growth in global cocoa consumption is far from certain given head winds in mature markets," Heffernan said.
"A challenge to the industry is to ensure mature market cocoa consumption at least remains stable in coming years."
High cocoa prices have failed to encourage farmers in parts of Indonesia, the world's third biggest producer, to regenerate their farms, said Peter Petersen, an analyst and director of Amo Delta Ltd based in Ghana.
This process is necessary to keep yields high after cocoa trees have matured beyond their peak productive years.
"It's a paradox that prices being very high have actually in some way slowed down regeneration because if you want to replant your cocoa farm then you're not going to have any cocoa income for those years," Petersen said.
"If cocoa prices are high ... you're therefore reluctant to cut down those trees."----
