Post by Trade facilitator on Feb 26, 2013 3:47:53 GMT 1
High processing costs and finance may deny Nigerian cocoa farmers the benefits from expected supply deficits in the global cocoa market in the 2013 season.
With the major producing countries falling behind in production and the need to revive grindings, owing to depleted stocks of cocoa butter and powder in the confectionery sector, most analysts are expecting a supply deficit to occur in the current 2012/2013 cocoa season, according to a current International Cocoa Association (ICCO) Monthly Review for January 2013.
Ordinarily, when there is a supply deficit for a product or service, one should expect a price increase. But the opposite of this will play out in cocoa trade in the 2012/2013 season, according to Akin Olusuyi, CEO of Cocoa Products (Ile-Oluji Limited.
Reacting to the report, Akin Olusuyi, whose processing plant has an annual installed capacity of 30,000 metric tonnes said, “There is no doubt that the envisaged production shortfall will put demand pressure on the quantity available and the factories in Europe and America will use their advantage of access to cheaper and longer tenure funds to try to out-price origin processors.”
It is no secret that lending rate in Nigeria is as high as between 18 and 30 percent. Whereas in Europe and America it is single digit lending interest rate , as low as 5 percent. And lending portfolio in Nigeria is skewed positively towards trading- import and export because manufacturing is considered high risk.
Akin Olusuyi explained, “If the deficit trend continues as it is, then processing companies in Nigeria and indeed in origin countries, can start to look forward to climbing out of the deep recession the butter glut regime that lasted for more than two years brought about.
To take maximum advantage of this however, there must be a way of stemming the unfair competition that exporters of raw beans from Nigeria are giving the local processors.”
The Cocoa Processing Association of Nigeria (COPAN) frowns at export of raw cocoa beans. According to Dimeji Owofemi, chairman of the association and CEO Multi-Trex Integrated Foods Plc, “Raw cocoa beans export is increasing, as it is being highly rewarded by government who must also note that zero tax is imposed on it by European countries to keep their factories working at optimum capacity to sustain employment in their own countries.”
Dimeji argued the corollary of that is that value addition to raw cocoa is decreasing, as it is being poorly rewarded and unprotected against the massive export of raw cocoa beans and the processed products are also heavily taxed by the same European countries that are charging no tax on raw cocoa beans. “This is done by them obviously to discourage value addition in Nigeria, giving as its reason, the refusal of Nigeria to sign the European Partnership Agreement (EPA) agreement,” he said.
Akin Olusuyi said for every ton of cocoa beans exported from Nigeria, two jobs are exported. This is akin to the case in the sugar cubing sector, where over 4,000 jobs are exported to France as a result of Nigerian cubing plants that are not functioning because Nigeria depends largely on import of St Louis sugar from France.
Reacting to this, Felix Oladunjoye, COPAN’s executive secretary said, “Whatever gap on supply and demand on cocoa output will have influence on the price. Cocoa is always subject of gap positive or negative developments. Events will play out on price adjustment. Nigerian production for 2012/2013 accordingly is expected to be down to between 180 to 200 metric tonnes due to infestation. Again the effect will be on price.”
But Simon Conway-Jarrett, managing director, Tulip Cocoa Processing Limited argued “Stocks will recover in my view anyway, as unused capacity will start to come back. So I do not think there will be a significant supply deficit, as such. What I hope we will see is increased use of capacity available in Nigeria to meet any extra demand for Nigerian cocoa products in the market.”
The Ivorian Ministry of Economy and Finance reported that cumulative port arrivals had reached 400,047 tonnes in Côte d’Ivoire at the end of November, down by 34,776 tonnes (minus eight per cent). Provisional data from news agencies estimated that arrivals had reached 817,000 tonnes as at the end of January. Compared to the same period in the previous season, this reflects a fall of almost seven per cent in production. However, these data have been challenged by some analysts, who believe that the real volume that reached the ports has been underestimated.
In Ghana, seasonal cocoa purchases were also lower than those recorded for the previous year, as the Ghana Cocoa Board indicated that 539,247 tonnes had been declared as at 17 January. On the demand side, the European Cocoa Association reports that cocoa grindings for Europe’s fourth quarter of 2012 has fallen by 6.2 percent, compared with the same period for the previous year, to 327,982 tonnes. Reports indicate that continued poor processing margins have contributed to the fall in grindings.
Conversely, grindings data provided by the US National Confectioners’ Association for the fourth quarter of 2012 rose by 0.95 percent, compared with the same quarter for the previous year. This slight increase represents the first positive North American grindings data since the last quarter of 2011.
Whereas LIFFE certified stocks fell by eight per cent, compared to the previous month, the level of stocks held in licensed warehouses in the United States increased slightly by one per cent. The arbitrage spread between the LIFFE and ICE cocoa futures markets continued to be generally narrow, with more stocks in the United States.
According to the ICCO survey of world cocoa bean stocks, 1.838 million tonnes of stocks were located as at 30 September 2012, with 1.262 million tonnes held in cocoa importing countries, 498,000 tonnes held in origin countries and 77,000 tonnes held in transit.
Source: www.businessdayonline.com/NG/index.php/news/76-hot-topic/52226-cost-finance-may-deny-nigeria-benefits-of-cocoa-supply-deficit
With the major producing countries falling behind in production and the need to revive grindings, owing to depleted stocks of cocoa butter and powder in the confectionery sector, most analysts are expecting a supply deficit to occur in the current 2012/2013 cocoa season, according to a current International Cocoa Association (ICCO) Monthly Review for January 2013.
Ordinarily, when there is a supply deficit for a product or service, one should expect a price increase. But the opposite of this will play out in cocoa trade in the 2012/2013 season, according to Akin Olusuyi, CEO of Cocoa Products (Ile-Oluji Limited.
Reacting to the report, Akin Olusuyi, whose processing plant has an annual installed capacity of 30,000 metric tonnes said, “There is no doubt that the envisaged production shortfall will put demand pressure on the quantity available and the factories in Europe and America will use their advantage of access to cheaper and longer tenure funds to try to out-price origin processors.”
It is no secret that lending rate in Nigeria is as high as between 18 and 30 percent. Whereas in Europe and America it is single digit lending interest rate , as low as 5 percent. And lending portfolio in Nigeria is skewed positively towards trading- import and export because manufacturing is considered high risk.
Akin Olusuyi explained, “If the deficit trend continues as it is, then processing companies in Nigeria and indeed in origin countries, can start to look forward to climbing out of the deep recession the butter glut regime that lasted for more than two years brought about.
To take maximum advantage of this however, there must be a way of stemming the unfair competition that exporters of raw beans from Nigeria are giving the local processors.”
The Cocoa Processing Association of Nigeria (COPAN) frowns at export of raw cocoa beans. According to Dimeji Owofemi, chairman of the association and CEO Multi-Trex Integrated Foods Plc, “Raw cocoa beans export is increasing, as it is being highly rewarded by government who must also note that zero tax is imposed on it by European countries to keep their factories working at optimum capacity to sustain employment in their own countries.”
Dimeji argued the corollary of that is that value addition to raw cocoa is decreasing, as it is being poorly rewarded and unprotected against the massive export of raw cocoa beans and the processed products are also heavily taxed by the same European countries that are charging no tax on raw cocoa beans. “This is done by them obviously to discourage value addition in Nigeria, giving as its reason, the refusal of Nigeria to sign the European Partnership Agreement (EPA) agreement,” he said.
Akin Olusuyi said for every ton of cocoa beans exported from Nigeria, two jobs are exported. This is akin to the case in the sugar cubing sector, where over 4,000 jobs are exported to France as a result of Nigerian cubing plants that are not functioning because Nigeria depends largely on import of St Louis sugar from France.
Reacting to this, Felix Oladunjoye, COPAN’s executive secretary said, “Whatever gap on supply and demand on cocoa output will have influence on the price. Cocoa is always subject of gap positive or negative developments. Events will play out on price adjustment. Nigerian production for 2012/2013 accordingly is expected to be down to between 180 to 200 metric tonnes due to infestation. Again the effect will be on price.”
But Simon Conway-Jarrett, managing director, Tulip Cocoa Processing Limited argued “Stocks will recover in my view anyway, as unused capacity will start to come back. So I do not think there will be a significant supply deficit, as such. What I hope we will see is increased use of capacity available in Nigeria to meet any extra demand for Nigerian cocoa products in the market.”
The Ivorian Ministry of Economy and Finance reported that cumulative port arrivals had reached 400,047 tonnes in Côte d’Ivoire at the end of November, down by 34,776 tonnes (minus eight per cent). Provisional data from news agencies estimated that arrivals had reached 817,000 tonnes as at the end of January. Compared to the same period in the previous season, this reflects a fall of almost seven per cent in production. However, these data have been challenged by some analysts, who believe that the real volume that reached the ports has been underestimated.
In Ghana, seasonal cocoa purchases were also lower than those recorded for the previous year, as the Ghana Cocoa Board indicated that 539,247 tonnes had been declared as at 17 January. On the demand side, the European Cocoa Association reports that cocoa grindings for Europe’s fourth quarter of 2012 has fallen by 6.2 percent, compared with the same period for the previous year, to 327,982 tonnes. Reports indicate that continued poor processing margins have contributed to the fall in grindings.
Conversely, grindings data provided by the US National Confectioners’ Association for the fourth quarter of 2012 rose by 0.95 percent, compared with the same quarter for the previous year. This slight increase represents the first positive North American grindings data since the last quarter of 2011.
Whereas LIFFE certified stocks fell by eight per cent, compared to the previous month, the level of stocks held in licensed warehouses in the United States increased slightly by one per cent. The arbitrage spread between the LIFFE and ICE cocoa futures markets continued to be generally narrow, with more stocks in the United States.
According to the ICCO survey of world cocoa bean stocks, 1.838 million tonnes of stocks were located as at 30 September 2012, with 1.262 million tonnes held in cocoa importing countries, 498,000 tonnes held in origin countries and 77,000 tonnes held in transit.
Source: www.businessdayonline.com/NG/index.php/news/76-hot-topic/52226-cost-finance-may-deny-nigeria-benefits-of-cocoa-supply-deficit
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