Chocolate Key to Cocaine Crackdown

Convershaken Staff
January 8, 2016

One letter separates coca and cocoa, but the two crops differ mightily in the products they're used to make: cocaine and chocolate respectively. Yet they're more related than one might think: a 60 per cent rise in cocoa prices in the past four years has led many farmers in Colombia - where a third of the world's cocaine is produced - to switch to growing cocoa beans.

In an interview with Bloomberg, one of the country's farmers said a kilogramme of cocoa beans could fetch 6,800 pesos ($2.31) - more than double the going price in 2012 - and growing cocoa was less likely to incite violence or draw the ire of authorities. The sharp rise in global cocoa prices was driven by dry weather in Ghana and Ivory Coast, the world's two largest producers. It also reflected booming demand for confectionery: the chocolate market is expected to top $115bn by 2020, up from $50bn in 2001.

Governments and multinationals have broken open their piggy banks to support the shift from coca to cocoa. For instance, the US Agency for International Development has invested $620m in Peru since 2002 to help it replace more than 80,000 hectares of coca with legal alternatives such as cocoa. Its efforts fuelled a 57% rise in the value of cocoa exports in Peru - the world's largest cocaine producer - to $247m in 2014.

Market forces and government efforts have taken a bite out of the cocaine industry: about 54% of all cocoa in Colombia is now grown in areas where illegal crops once grew. Moreover, coca plantings across Peru, Colombia and Bolivia - which account for virtually all cocaine production - have fallen to their lowest level since the mid-1980s.

Cocoa satisfied many a sweet tooth in 2015: prices leapt 14% even as broader commodity markets lost 40% of their value. But the trend could be broken in 2016, predicts Bloomberg, as macroeconomic uncertainty, lower demand from major buyers and other factors weigh on prices. Cocoa futures - bets on the future price of cocoa - recently suffered their biggest 3-day slump in eight months.

Farmers - keen to milk the high-price environment - intend to plant more cocoa trees in the growing season which starts in October. The industry is now expected to register its largest surplus in six years; but Bloomberg highlights two 'processors' - who grind cocoa beans into powder - that predict consumption will be flat this year. Demand is also slowing as Hershey, Lindt and other chocolate makers dip into their inventories to avoid higher production costs. And governments continue to encourage production: Ivory Coast authorities are paying cocoa farmers more for the third year in a row.

Other factors include better weather - La Nina is predicted to bring more moisture to West Africa - and rising global output: Ecuador, Colombia and Peru are all producing more cocoa. In the words of Forrest Gump, cocoa speculators face a box of chocolates in 2016: they don't know what they're going to get.