The Commodities Market
On July 6th, The Financial Times of London issued a report on cocoa, Liberia's second largest agricultural export. It reported that even though prices of the commodity were near a 30 year high, the supply of the crop should decrease partly because of poor farming practices in Côte d'Ivoire which produces 40% of the world's cocoa and on increased demand in North America. Prices of cocoa have already risen 150% in the past 3 years. The combination should make the market ripe for hedge funds to exploit.
On July 17th, The FT reported that a hedge fund had taken control of 7% of the world's stock of cocoa. While it didn't predict a new future price, the hedge fund surely thinks that it will make a substantial profit on the trade. The prices will be passed to consumers.
Potential for Liberia
Liberia should gain from the chocolate lovers misfortune. Liberia is next to Côte d'Ivoire. They share a border and soil that is excellent for growing cocoa trees. Another 30% of the world's cocoa grows in West Africa, but very little from Liberia. Liberia's cocoa exports were just $1,373,000 in 2010, well under potential capacity (Côte d'Ivoire exported over $1 billion in cocoa).
Like other agriculture, cocoa farms were abandoned during the war years. Human capital with cultivation knowledge fled as well. This places Liberia at a disadvantage compared to its neighbor but it is not as far behind as it seems. Because of Côte d'Ivoire poor farming practices, Côte d'Ivoire must replace most of its trees in current production. Also, Côte d'Ivoire's producers are usually very small and fragmented. This legacy and corruption in Côte d'Ivoire give Liberian producers room to reinvent the cultivation process in West Africa with economies of scale and transparency.
The war's destruction prompts many to speculate that Liberia should be 30 years ahead of its prewar condition. Few nations in West Africa are where they could have been. Furthermore, histories that come with legacies like corruption are hard to disrupt. Liberia has great opportunity to reinvent the system because it must start again. Cocoa is one example of opportunity. The prices are right and supported by geography. The market awaits its move.
Sources:
- Cocoa
Published: July 6 2010 09:45 | Last updated: July 6 2010 14:28
http://www.ft.com/cms/s/3/a9b9943a-88cd-11df-8925-00144feab49a.html - Hedge fund develops taste for chocolate assets
By Jack Farchy in London
Published: July 16 2010 22:33 | Last updated: July 16 2010 22:33
http://www.ft.com/cms/s/0/e50feefc-9120-11df-b297-00144feab49a.html - Falling cocoa yields in Ivory Coast
By Javier Blas
Published: May 28 2010 23:08 | Last updated: May 28 2010 23:08
http://www.ft.com/cms/s/2/28e00036-67a0-11df-a932-00144feab49a,dwp_uuid=a712eb94-dc2b-11da-890d-0000779e2340.html - Intensified Cocoa for Sustainable Development in Liberia
Dr. James Gockowski
Sustainable Tree Crops Program
http://trend.ag.utk.edu/international/IntensifiedCocoaSustainableDevelopmentLiberia.pdf - Liberia 2009 Balance of Payments
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