Côte d’Ivoire and Ghana Resilient to Credit Pressure from 10-yr low in Cocoa Prices

LONDON (Capital Markets in Africa) – While cocoa prices at 10-year lows will put pressure on the economies and fiscal position of leading producers Côte d’Ivoire and Ghana, both will be able to withstand short-term price fluctuations, Moody’s Investors Service said in a report today. Current average cocoa prices reflect a drop of around 30% compared to mid-2016.

The report, “Sovereigns — Africa: Côte d’Ivoire and Ghana Resilient to Credit Pressures from Fall in Cocoa Prices”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

“The 30% drop in cocoa prices will put pressure on all stakeholders in the cocoa sector, but particularly Côte d’Ivoire and Ghana, through the current account, fiscal and economic channels,” said Aurélien Mali, a Moody’s Vice President — Senior Credit Officer and co-author of the report.

Although Africa produces close to 74% of global cocoa, the continent accounts for only around 20% of the grinding process. Unlike manufacturers and traders that are concentrated in a small number of companies and enjoy higher bargaining power, farmers receive a very small share (6-7%) of the value distribution in the supply chain. Household revenue is more exposed to the volatility in prices as the agriculture sector employs about two-thirds of the population in Côte d’Ivoire and over 40% in Ghana.

“That said, minimum farm gate prices have protected farmers in Côte d’Ivoire from the short-term fluctuation in prices, while Ghana’s burgeoning oil sector will help to offset the impact on its credit profile.”

The impact of the cocoa price fall on the current account balance will be more significant for Côte d’Ivoire than Ghana because cocoa exports accounted for around 43% of its total merchandise exports in 2015, compared to 24% in Ghana.

For Côte d’Ivoire, Moody’s expects lower cocoa prices and higher investment-related imports will increase the current account deficit to 2.7% of GDP in 2017, from 0.6% in 2016 and compared to a surplus of 0.7% over 2014-15. Lower exports will also weigh on growth.

In Ghana, Moody’s expects the current account deficit to improve to 6.3% of GDP in 2017 from 6.6% in 2016, amid higher GDP growth supported by new oil and gas field developments.

Over the longer-term, growing demand for chocolate in developing markets suggests that low prices – although still possible – are unlikely to persist for many years.

Although Switzerland, the United Kingdom, Germany and the United States remain the top chocolate consumers, these markets are already fully penetrated. On a per capita basis, Switzerland annually consumes around 9.2 kg of chocolate and the average Western European consumes 4.7 kg, while consumption for China and India only stands at around 0.1 kg, indicating further potential for cocoa production to meet growing demand over time as those markets are likely to deepen