WCC5 Opening speech Michel Arrion – ICCO Executive Director

Speech by the ICCO Executive Director

World Cocoa Conference

Brussels, 22 April 2024



** Ministers,**




**Ladies and Gentlemen in your respective ranks, titles, and positions,**


**Dear Participants,**


This morning, I would like to revisit the main theme of the Conference and its relevance to our Organization, particularly its Strategic Program for 2024–2029, which has placed the increase of small producers’ income at the heart of its strategy. We will also show the link between this theme and the various panels we have scheduled for tomorrow, Tuesday.

The theme of our Conference, “Paying More for Sustainable Cocoa,” should be understood with its subtitle, “For a More Equitable Distribution of Added Value Along the Cocoa Supply Chain.”

We can distinguish three main ideas here: (i) paying more; (ii) in relation to sustainability; (iii) throughout the supply chain.

Let’s revisit these one by one, trying to define or clarify the concepts.

Paying More.

Here we are, of course, referring to the price paid to the small producer, that is, the farm-gate price or the cooperative price, depending on the case. Several points need to be recalled here:

– Prices are low and are not sufficient to achieve a decent income.

– Small producers are poor and cannot live off their cocoa.

– Cocoa is a monoculture, often constituting their only resource.

– Historically, prices have continually declined in real terms. Here I would like to open a parenthesis and remind you not to confuse real prices with nominal prices. A dollar in 2024 cannot be compared to a dollar in 1980 or 1990. Even less so a euro… It is necessary to take inflation and exchange rate variations into account when comparing price levels over a long period.

So how do we manage the mechanisms of setting the farm-gate price paid to the producer in order to increase it?

First, we need to distinguish between countries where prices are regulated, that is, set by the governments of producing countries, and countries where the market determines the prices.

I would like to clarify here that the setting of agricultural prices and agricultural subsidies in general are widely practiced around the world, directly or indirectly, including in liberal economies like the European Union or the United States of America.

For decades, Europe, with the Common Agricultural Policy, subsidized European farmers by setting higher domestic prices than international prices. Ultimately, it was the European consumer who contributed to the financing of the CAP. In the United States, successive “Farm Bills” provide various supports to American farmers in the form of safety nets, loans, crop insurance, etc. Here, it is not the American consumers but the American taxpayers who ultimately finance the system.

In countries where prices are regulated, the authorities in charge of the cocoa sector often aim to ensure that producers benefit from a substantial share of the world price, that is, the price on international markets. They then set the farm-gate price at a high percentage, for example, 70% of the world price. We see that in reality, the “setting” of the price is largely dependent on the level of the world market price. If we want high farm-gate prices, we need high world prices. A necessary but not sufficient condition, as we will soon see.

For world prices to be high, supply must of course be lower than demand. Therefore, production must be stabilized, surpluses must be avoided, and demand must be stimulated, that is, cocoa consumption must be promoted.

The current market situation sufficiently proves the impact of stabilized supply at levels below demand. Prices react more than proportionally to supply variations. And sometimes much more.

Many will remember the price drop of more than 30% in 2016/2017, due to an increase in production of about 15%. We are now in the opposite situation with a production decline of 10% and price increases, much more than proportional, ranging from 75% to 200%, depending on the comparisons made.

In countries where prices are not regulated and where markets determine prices, the situation is hardly different, and governments have every interest in monitoring market placements and managing production to keep prices high.

Undoubtedly, the panel scheduled for tomorrow on supply management will allow us to delve deeper into these issues.

I would now like to clarify that, in countries where prices are regulated, the transmission of world price variations is not always automatic and immediate, which of course poses problems during the year. In guaranteed price systems, prices should probably be recalculated more often rather than just once a year. But this means adapting the way forward sales are made, and especially the volumes covered by these forward sales, by renewing operations more frequently to better match market variations.

Regarding demand, that is, promoting consumption, we must act on both qualitative and quantitative aspects.

Developing a market segment for high-quality organoleptic cocoa, developing premium cocoa, will allow the development of cocoa appreciated by consumers who are willing to pay the price. I am sure that tomorrow, several panels and speakers will put the issues of “decommodification” of cocoa and “market segmentation” on the discussion table.

But on the quantitative level as well, much work remains to be done to develop “new markets,” emerging markets. The European and North American markets are almost saturated in terms of per capita consumption and demographics. The new Asian markets are the future of global cocoa consumption growth, as it is in Asia that the two conditions for demand growth will be met: demographics and the emergence of a middle class with sufficient income to consume chocolate products.

Let us now move on to the second main idea.

The Link with Sustainability.

Cocoa production has a high environmental and social cost, and this cost is rarely included in the value of cocoa. It should be. The panel tomorrow on the “true cost” of cocoa will allow us to discuss this issue in detail.

Moreover, compliance with social and environmental sustainability standards, both the standards of producing countries and the standards of consuming countries, represents a high cost. This cost should not fall on the producers; it should be absorbed by other stakeholders in the supply chain. Another panel tomorrow on the impact of policies and regulations will allow us to discuss this important issue. Our message must be clear: we aspire to higher cocoa prices, both to improve producer income and to cover the costs of social and environmental externalities and compliance costs. In other words, if we want sustainable cocoa, it must be paid for at its fair price, which must include all direct and indirect costs. As Her Majesty the Queen reminded us this morning, prices and sustainability are two sides of the same coin.

Let us now move on to the third and final main idea.

The Distribution of Value Along the Supply Chain.

The distribution of value along the marketing chain, as we know, is very inequitable. Yesterday afternoon, during a side event organized by GIZ with the consulting firm Basic, we were able to discuss in detail the distribution of costs and margins of each actor in the chain. Basic’s study shows that variations in value creation, costs, and margins mainly occur at the last two stages of the chain: the manufacture of finished chocolate products and distribution. So how do we increase the share for small producers?

I would like to clarify an important point here: it seems illusory to ask all stakeholders in the chain to reduce their profit margins for the benefit of producers. Everyone will tell you that their net margins are very slim: collectors, processors, wholesalers, exporters, importers, grinders, chocolate and confectionery manufacturers, distributors… None of them want to reduce their share.

The solution is not to ask everyone to reduce their slice of the pie. The solution is to make a bigger pie! We need to create value per ton of cocoa, increase prices and margins for everyone, and make the final consumer pay.

In conclusion: when I mentioned at the beginning of my speech that the theme of the Conference could be interpreted as calling for paying farmers more for sustainable cocoa, I think it can also be interpreted as a call to final consumers to pay more for sustainable cocoa.

Thank you.