Hard Prices for African Softs

There has been an upturn in commodity prices since 2002 reflecting robust demand and supply-side capacity constraints in producing countries. Last year, agricultural commodities registered a 10.5% annual increase, and the outlook for this season, according to Moin Siddiqi, is equally healthy.
Strong markets have fuelled economic growth in commodity- exporting countries in recent years. According to International Monetary Fund (IMF) figures, the index of beverage prices (notably coffee, tea and cocoa) rose by 35% in US dollar terms during the July 2004-March 2005 period, underpinned by a substantial 56% surge in coffee prices on the back of poor harvests in Brazil and Vietnam.

Tea and cocoa prices have also strengthened during the first quarter of 2005 – with cocoa prices vulnerable to civil strife in Cte d’Ivoire and expectations of a smaller 2004/05 Ivorian crop.
By contrast, prices of agricultural raw materials fell by 1% between July 2004 and March 2005. Notwithstanding recent falls, softwood lumber prices ended 2004 about one-third higher owing to strong housing demand in North America, but prices have recently stabilised.
Cotton prices remained weaker largely due to heavy subsidies paid by the US government to their farmers.
The US cotton industry received more than $14bn in government support between 1995 and 2003, according to the Environmental Working Group that monitors farm subsidies worldwide. However, cotton prices are now slowly rising because of stronger than expected demand and a projected drop in the 2005/06 harvest.
Rubber prices, too, ended 2004 about 4% lower compared to 2003 levels, reflecting subdued global demand and higher production – which resulted in a 10% hike in inventories.
Looking ahead, the World Bank envisages a 6% fall in agricultural prices during 2006 as further supply increases and the projected global slowdown affects consumption growth in the Organisation for Economic Cooperation and Development (OECD) importing-countries.
British PM Tony Blair enjoys a cup of tea. Kenya is now the world’s largest tea producer with over a quarter of its crop going to Pakistan although Britain remains an important export market.
The International Cocoa Organisation (ICCO) estimates the 2004/ 05 crop, ending 30 September, at 3,216,000t, (down 8% on the previous season), against world consumption of 3,228,000t.
This indicates a production deficit forecast (allowing for 1% bean weight-loss) of 44,00Ot – the first global shortfall since crop year 2001/02. Total end-of-season stocks, at 1,400t, represent stocks-to-use ratio of 43.4%, or five months of annual consumption.
West Africa – led by Cte d’Ivoire – remains the principal ‘cocoa- belt’ province, accounting for 70% of the global crop. By contrast, the shares of the Asia/Oceania and Americas regions stand at 16% and 14% respectively.
The ICCO puts the African crop at 2,266,000t, of which Cte d’Ivoire (the world’s largest producer) should contribute 1,270,000t, Ghana 600,000t, Nigeria 180,000t and Cameroon 170,000t. The Ivorian harvest is anticipated to drop by 137,000t or 9.7% because of poor climatic conditions last summer and low farm-gate prices.
On the demand side, according to the ICCO, the top five consuming countries in 2004/05 were Netherlands (450,000t), the US (415,000t), Cte d’Ivoire (310,000t), Germany (229,000t) and Brazil (203,000t). Grindings of cocoa beans grew by 2% per annum over the past decade, whilst the global crop has grown by 3.6%/year.
The Ghanaian 2003/04 crop hit an all-time high of 740,000t underpinned by official initiatives, such as subsidised pesticides, seedlings and farm husbandry training.
Kwabena Osei-Bonsu, deputy executive director of Ghana’s Cocoa Research Institute, reckons that Ghana should remain in second position in the global production league – and the figure of 600,000t to 700,000t/year is unlikely to change much in coming years. The country’s cocoa exports during 2003/04 were worth more than $1.2bn.
Meanwhile, Nigeria – the world’s fourth biggest cocoa grower – has launched an ambitious development programme to expand output to 320,000t and 600,000t, respectively, by 2006 and 2008.
Under the programme, farmers will receive subsidised agro- chemicals and seedlings and cocoa processing will be encouraged. The southwest states of Ekiti, Ogun, Ondo, Osun and Oyo usually account for 70% of Nigeria’s total crop – which peaked at 400,000t in 1970. Nigeria’s 2005/06 main crop is forecast at 200,000t, according to the National Cocoa Development Committee.
Cameroon is also aiming to expand annual capacity to 200,000t over the next five years. An official from Cameroon’s Cocoa Development Board explained: “It is a five-year project dubbed Operation 200,000t and involves the provision of inputs, improved seedlings, assisting farmers to open up new farms, fighting pests, other diseases and providing support to better drying facilities, among other activities.”
The southwestern province produces onehalf of Cameroonian cocoa crop. East Africa too, has started growing cocoa over the past three years. Uganda has planted 5,000 hectares of cocoa and the 2004/05 crop is expected at 5,500t.
CROPCAST services, the US-based agricultural meteorological division of the Earth Satellite Corporation, projects the 2005/06 global cocoa crop at 3,415,000t, of which Africa’s crop is pegged at 2,400,000t. The ICCO daily price averaged $l,645/t over January- June 2005, up from $l,534/t during 2004.
In 2004/05 (April-March), the global coffee harvest was estimated at 113.98m bags compared with consumption of about 113.4m bags, according to the International Coffee Organisation (ICO).
The top five producers were Brazil (38.66m bags), Vietnam (14m bags), Colombia (11.5m bags), Indonesia (6.16m bags) and Ethiopia (5m bags).
Global coffee consumption has risen by 1.5%-2% per annum. Major importing countries in 2004 were the US (20.78m bags), Germany (10.74m bags), Italy (5.4m bags), France (4.99m bags), and Spain (2.79m bags).
World exports during between May 2004 and April 2005 totalled 90.1m bags valued at $7.07bn, up from $5.56bn in 2003, but still well below the levels of late 1990s.
Coffee prices have recovered from the historic lows of the 2001/ 02 season, with robusta and arabica, the two most heavily traded beans, averaging 32.84c/lb and 79.53c/lb respectively in 2004.
The IOC report added: “Current price levels could be maintained throughout the year although some volatility will prevail as has been registered during recent weeks. Levels of robusta prices will depend very much on weather conditions in Vietnam.”
The 2004/05 African crop is pegged at 15.2m bags, of which the finer Arabica beans, mainly grown in East Africa, comprised over one- half of the total harvest.
Left: Ghana should keep its number two position, after Cte d’Ivoire, in the global cocoa production. Fairtrade chocolate is increasingly winning consumer approval in the West. Photo courtesy Divine Chocolate. Right: Ethiopian coffee is widely recognised as one of the world’s finest. With prices recovering from historic lows, the country has signed contracts to export 190,000t in the next 11 months.
Uganda’s crop – Africa’s second largest after Ethiopia – is put at 2.8m bags. According to Zwedi Gidy, head of marketing for the Agricultural Ministry, Ethiopia had signed contracts for more than 190,000t of coffee worth $394m over an 11 month period.
Meanwhile, the small but highly prized Kenyan Milds blend should total 60,000t, up from 48,000t last year, according to the Coffee Board of Kenya. Coffee was once Kenya’s major foreign exchange earner with output peaking at 130,000t in 1987. But poor husbandry and over-regulation have affected the industry.
The authoritative German statistical agency F O Litch projects a 7m bags supply deficit for 2005/06 crop year with production at around 110m bags. Its report states: “Production falls in the coming season for the two main producers, Brazil and Vietnam, could well amount to more than 6m bags. This suggests that production next season could fall to around 110m bags, even without any major weather calamity.”
However, it added: “Existing stocks are probably still high enough to prevent prices from going through the roof, especially as relief seems to be in sight for 2006/07.”
Global stocks last year were estimated at almost 40m bags. The IOC, too, expects a 7% drop in 2005/06 harvest to 106m bags – the lowest since 2003.
A new report by the United Nations’ Food and Agriculture Organisation (FAO) reckons that worldwide coffee production should grow by 0.5%/year over the medium-term, marginally surpassing projected consumption growth of 0.4%. The FAO identifies two important changes in the coffee market. First, the main regions for production growth are likely to be Asia/Oceania and Africa, rather than Latin America. In Africa, coffee output is forecast to increase by 1.5%/year because of yield enhancement.
Secondly, the pattern of consumption growth is shifting from the developed to developing countries.
The International Sugar Organisation (ISO) estimates the 2004/05 sugar crop, ending September 30, at 145.1m tonnes – representing a modest 2% hike over the previous year – with consumption at 147mt, thus resulting in a shortfall of 1.9mt.
The ISO said: “Based on market fundamentals, expectations were for steady sugar prices in the coming months. Stockpiles will be large enough to cover the deficit without any tightness in export supplies.” There was also a 1.6mt supply deficit in 2003/04.
The UK trading house, ED&F Man anticipates a larger shortfall of 3.2mt in 2004/05 based on a global output of 143.67mt versus consumption of 146.88mt.
Only the US Agriculture Department (USDA) is expecting the season to record a surplus of 1.5mt. The new season could signal the end of global supply tightness. The ISO remarked: “We are seeing early indications that 2005/06 and 2006/07 could be very well balanced years.” A recent OECD-FAO Agricultural Outlook survey projects a balanced sugar market in 2005/06 – with worldwide raw sugar output and offtake at 150.92mt and 150.88mt respectively.
Total stockpiles are forecast at 67.87mt equivalent to stocks-to- use ratio of 45%.
The report envisages sugar prices falling to $188.6/t (14% down on 2004/05). In contrast, the USDA forecasts a sizeable surplus of 3.6mt, based on total harvest (146.3mt) against global demand of 142.7mt.
Worldwide, sugar exports in 2005/06 are estimated at 46.3mt. The top three producers are Brazil (29.5mt), India (18.8mt) and China (10.9mt), according to the USDA data. Africa produces about one- tenth of total cane output, the major growers being South
Africa, Egypt, Sudan, Mauritius and Sudan. The latter currently exports around 200,000t/year – mostly of white sugar.
The ISO believes that Sudan – with ample water resources – can easily export half a million tonnes within two years. Peter Baron, executive director at the ISO, said: “The Sudanese expectation is to enter the world market in a big way and they have the capacity. They have no limitation regarding water, which is normally the restraining factor. Between the Blue and White Nile they have fantastic possibilities.”
The London-based International Tea Committee estimates that world output between May 2004 and April 2005 totalled 1,740,197t.
The top three producers – India (842.7t), Kenya (321.0041) and Sri Lanka (310.89t) together comprised more than four-fifths of total production. Every year, Africa harvests about one-quarter of the global tea crop; other producers (excluding Kenya) are Malawi, Tanzania, Uganda and Zimbabwe.
Last year, Kenya overtook Sri Lanka as the world’s largest tea exporter earning $571m. The major markets were Pakistan (representing 25.3% of Kenya’s exports), the UK, Egypt, Taiwan, China, Kazakhstan, Sudan, and South Africa.
Kenyan tea is popular in Pakistan where much of it is drunk at ubiquitous roadside ‘chai’ houses.
The Kenya Tea Development Agency led production with 192,500t, followed by the Kenya Tea Growers’ Association with 113,900t, and non-associated growers contributing 18,000t.
Almost the entire of Kenyan crop is ‘cut tear and curl’ (CTC) unlike Sri Lanka where 85-90% of the produce is green Orthodox tea.
The former is cut, fermented and dried, whilst the latter is made in such a way that the leaves are largely intact to retain the taste and aroma, thus making it popular among upmarket customers.
Kenya grew mainly orthodox teas during the 1970s but shifted to CTC in which it enjoys a competitive edge. This year’s crop is expected at 320m kg, according to the Kenya Tea Board.
The Rift Valley region is the tea-belt of the East African country. The Mombasa Auction price for ‘best broken pekoes’ grade tea averaged $2.41/kg between January and June 2005, up from $1.94/ kg in 2004.
The Dutch edible nuts trader Global Trading projects 2005 world output, led by Australia, at about 29,622t, up from 28,872t of kernels last year. It said: “The surprise is with the consumption. We had a 19% growth in consumption in 2004/05 but in order to sell the new crop’s available volume, we must grow sales by at least 6% or so, considering that around 1,000t remains unsold at the end of the season.”
The South African crop – Africa’s largest – should yield 4,500t of kernels, up a massive 47.5% on 2004. In other parts of Africa, notably Kenya, Malawi and Zimbabwe, the sustained hot and dry climate has put stress on the trees across the main growing areas, leading to expectations that production will only stay at a par with 2004 at around 2,625t. Global Trading, said: “The only reason the crop is similar to 2004 is the increased output of the young trees.”
Sub-Saharan Africa produces one-third of the world’s raw cashew nuts and 80% of output is exported in raw nut form to India and Vietnam for further processing.
The industry provides a livelihood for millions of small growers but insufficient opportunities for hard-currency earnings.
Tim Piper, deputy director of the US-based private sector agency TechnoServe, says: “By processing the raw nuts in Africa, there is significant scope for local value addition, which can bring in additional employment and foreign exchange earnings.
However, the creation of a local processing industry has significant challenges including investments in processing infrastructure, transfer of technology and capability building through training and skill development of workers, all of which needs significant resources.”
In 1975, Mozambique was the world’s top cashew producer, with annual output of 200,000t. The Mozambican government with help from the European Union, USAid, and the Trade and Industry Ministry of South Africa, has implemented a recovery plan to raise cashew output to 100,000t within two years from its current base of 60,000t.
Over the past five years, some 120,000 new cashew trees have been planted across Mozambique. Elsewhere, 2005’s cashew harvest in Guinea-Bissau is expected to reach 105,000t, Tanzania 75,000t and Nigeria (70,000t). Cashews are a principal export of Guinea-Bissau – netting $65m last year; Tanzania has earned $300m from cashew exports during the last five years, according to the Tanzania Cashewnut Board.
Copyright International Communications Aug/Sep 2005
Source: African Business via RedNova

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