Cocoa focus for Indonesia

Related tags Cocoa Cocoa bean Côte d'ivoire Indonesia

Indonesia's ambition to become the world's largest cocoa producer
by 2010 could wreak havoc on the global market, even if its beans
do not make it into the top grade, analysts said.

Indonesia's ambition to become the world's largest cocoa producer by 2010 could wreak havoc on the global market, even if its beans do not make it into the top grade, analysts said.

Indonesia is at present the world's third largest producer with around 400,000 tonnes a year, way behind the Ivory Coast (1.2 million) and just short of Ghana on 410,000 tonnes.

Now it plans to top the league with a 1.5 million tonne crop of good quality cocoa, but the market fears this could produce a knock-on effect leading to the same oversupply in cocoa as Vietnam triggered in coffee.

"(Indonesia's plan) could have a very negative impact in the market, driving prices down significantly,"​ said one source close to Ghana's cocoa industry in a phone conversation.

"Especially because I guess other countries could then be encouraged to also increase their production higher and then we would have even more cocoa around,"​ the source added.

Cocoa futures prices rallied last week on prospects of a third consecutive supply deficit in the 2002/03 season, based on first estimates of the upcoming crop in West Africa where 70 per cent of the world's cocoa is produced.

A bullish outlook for a commodity generally encourages producers to plant more in an effort to increase their market share.

"It is hard to forecast anything eight years down the road, but if grindings do not grow at the same pace, such an increase in production would force prices down,"​ said an analyst.

Traders and analysts see global grindings, an indicator of consumption, dropping in 2001/02 by an unprecedented eight to 10 per cent to around 2.7 million tonnes.

Estimates for the 2002/03 main crop in Ivory Coast forecast between 920,000 and one million tonnes coming out of this country. Ghana would be putting out 300,000-360,000 tonnes in the main crop.

In fact, to count on 1.5 million tonnes more from Indonesia eight years down the road is to take the most optimistic production outlook. Indonesia plans to harvest them through an expansion in plantations and high-yielding hybrid clones.

"They would have to start planting immediately for that amount of volume to come on stream by then,"​ said one analyst.

It takes between three and five years before a cocoa tree starts producing and between five and seven before it reaches its output peak.

Although increasing cocoa production seems the right thing to do given the current margins, getting higher-quality fermented cocoa could prove more tricky.

Indonesian farmers traditionally prefer to rush into cashing in their beans instead of waiting for the pods to ferment, which improves cocoa quality and raises the premium they get paid.

"If we have a period of structural deficit like this, where in a normal year there is less cocoa grown than is consumed, and prices therefore maintain this level or higher, the incentive to produce cocoa would be immense,"​ said an analyst.

"(But) when prices are high, the markets will provide farmers with a decent income and therefore the incentive to produce a better quality may be lower,"​ the analyst added. When the Indonesian Cocoa Association (Askindo) announced its expansion plan last week it was reluctant to talk about a strategy to encourage better quality beans among farmers. "About quality, I have doubts because ...traditionally (the Indonesians) are a source of low quality beans,"​ said the Ghana source.

While most of the cocoa countries produce fermented cocoa with the exception of the Dominican Republic, only five per cent of Indonesia's cocoa exports are fermented beans.

Related topics Market Trends

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