Source: Bloomberg

By Isis Almeida, Baudelaire Mieu, and Leanne de Bassompierre
November 30, 2020, 10:16 AM EST Updated on December 1, 2020, 4:17 PM EST

Ivory Coast and Ghana halted Hershey’s sustainability programs
Nations accused Mars of changing purchases to avoid premium

Some in the world’s chocolate markets see a hefty premium charged by the largest cocoa producers as a blunt instrument wielded by the OPEC of confections — a tool of a faraway cartel that artificially inflates the price of a precious ingredient.

To the leaders of Ivory Coast and Ghana, where most of the world’s cocoa is actually produced, the argument is something else entirely: a lifeline for farmers and entire economies that would otherwise be held hostage to the vagaries of global commodities markets.

Now those competing viewpoints — globalization reduced to a chocolate bar — have collided in spectacular fashion, thrusting the normally secretive machinations of some of the world’s biggest chocolate companies, cocoa traders and processors into rare public view.

The governments of Ivory Coast and Ghana accused Hershey Co., maker of Kisses, Reese’s and other chocolate treats, of trying to skirt around the $400-a-ton premium they’ve slapped on cocoa, aimed at boosting incomes for hard-pressed cocoa farmers. They also said Mars Inc. changed its buying patterns to avoid paying the charge.

Hershey upended markets in November when it unexpectedly bought large amounts of cocoa through the futures market, squeezing the New York contract.

“Some chocolatiers and trade houses have adopted covert strategies to circumvent the farmer income improvement mechanism with the aim of collapsing it,” Yves Kone, managing director of Le Conseil du Cafe-Cacao, and Joseph Boahen Aidoo, chief executive of the Ghana Cocoa Board, said in a Nov. 30 statement seen by Bloomberg, adding they will do “whatever is within our power to protect the over three million farmers from impoverishment.”

In retaliation, Ivory Coast and Ghana suspended all of the Pennsylvania-based company’s sustainability programs, a move that could hurt sales to ethically minded consumers.

“It is unfortunate that Cote d’Ivoire and Ghana have elected to distribute a misleading statement this morning and jeopardize such critical programs that directly benefit cocoa farmer,” Hershey said in a statement to Bloomberg Monday, adding that it was paying the premium, known as the Living Income Differential or LID, for cocoa purchases from the 2020-21 season. “We buy a substantial supply sourced from West Africa.”

Many cocoa growers in West Africa live below the poverty line, growing beans on only one or two hectares. Chocolate makers and cocoa processors agreed to pay the West African nations the LID and other charges on top of futures prices, but after the pandemic slashed demand, companies needed to cut costs to weather a second wave of lockdowns from Paris to Los Angeles.

Exchange deliveries avoid big West Africa premiums
Since then, some exporters in Ivory Coast stopped buying cocoa, asking to pay a smaller quality premium known as the country differential, making it harder for the nation to sell about 250,000 tons of cocoa still left on the books. There has also been reluctance to pay the charge in Ghana.

“Ivory Coast and Ghana might be sending a stern warning to the trade, but they also need to be able to sell their cocoa of which they have plenty of,” said Judy Ganes, president of J. Ganes Consulting, who has followed markets for more than 30 years and previously worked for Merrill Lynch. “This is a stare down for sure with gloves off and will be interesting to see who blinks first.”

Hershey’s unexpected move to source cocoa through the exchange sent December contracts on ICE Futures U.S. to a record premium over March. The company highlighted at the time that it was buying cocoa with the LID, but that there were still beans in the market that were sold prior to the implementation of the premium. Hershey also said it needed cocoa from other origins to keep the consistency and taste its customers expect.

“The conspiracy and machinations by your company to evade the payment of the LID demonstrates your passive commitment to improve the incomes of three million West African cocoa farmers,” Kone and Aidoo said in a Nov. 30 letter to Hershey, adding that failure to comply with the orders would mean companies could lose their licenses to operate in the countries.

The regulators also took aim at Mars, saying the maker of Twix migrated the bulk of its cocoa butter purchases from its traditional processors, buying from Asian grinders JB Cocoa and Guan Chong Berhad instead just to avoid paying the premium. Mars said it “categorically disagrees” with the allegations and highlighted that it was the first major manufacturer to support the LID.

The accusations are a further hit to the reputations of chocolate makers…

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