‘Old Man’ Loses Big : Cocoa Turns Bitter for Ivory Coast

The cocoa trader had been waiting for two hours at the presidential palace when an aide to President Felix Houphouet-Boigny finally emerged to tender his regrets.

“He said, ‘The cocoa market is down, so he’s too depressed to see you,’ ” the trader recalls.

Houphouet-Boigny is too well known in the world of cocoa for the trader to have been surprised at this evidence that the president’s health and spirits track the market as well as figures on a trader’s computer screen.

It’s a reciprocal relationship: World cocoa prices also have a tendency to oscillate with every report on the health of Le Vieux-- “the Old Man.”

40% of World’s Cocoa

And why not? Ivory Coast, the West African nation that has been led by Houphouet-Boigny for its 29 years of independence, produces 40% of the world’s cocoa, all of it high grade. That is a ratio matched by no petroleum exporting country in the oil markets.

And in the world of Ivoirian cocoa, Houphouet-Boigny’s word is law.

“Just about any decision of any importance in cocoa goes to the president,” one local economist says.

For all that, no one today can be sure whether it was pride, cunning or something else that led the ailing 84-year-old president 18 months ago to attempt a power play on the market on a grand scale.

Provoked by an unprecedented crash in the world cocoa price, as well as by his longtime mistrust of cocoa speculators and processors, Houphouet-Boigny decided to boycott the world market.

No Ivoirian cocoa would be sold, except at the mandated price, he decreed.

It was a challenge to the world--and a gamble. The dominant producer was forming a one-country cocoa cartel.

While the reasons for the move remain obscure, what is known is that Houphouet-Boigny lost, and lost big.

“Most of us knew the cocoa withholding scheme would be a disaster,” one Abidjan banker says, speaking on condition of anonymity. But few could have guessed the disaster’s magnitude.

The way Ivory Coast turned its blessing of cocoa into, at best, a mixed curse has much in common with the experience of most other African nations economically dependent on one or two commodities.

Often, these are the agricultural commodities that have suffered the sharpest price falls in the past two decades. Tobacco in Malawi, coffee and tea in Kenya--all bring in only a fraction of the foreign earnings of 10 or 15 years ago. Spread across the continent are countries impoverished by the intractable price squeezes in rubber, palm oil and peanuts.

But Ivory Coast thought it was different. For more than 20 years cocoa has helped make this country one of the richest in Africa.

Ivory Coast has West Africa’s best highways, its most remarkable city skyline, its richest middle class. All were financed by cocoa. The annual per capita gross national product of more than $600 is three times the sub-Saharan average.

What makes this achievement more impressive is that this economic miracle was wrought in what was a backwater of French West Africa at independence in 1960.

But the end came in 1987, when the world price of cocoa collapsed, partially in response to a glut to which Ivory Coast’s own record crops made no small contribution. Cocoa fell to the lowest price in 13 years--and there it rests.

Two Major Mistakes

Instead of doing what many market experts say would be the wise thing--cutting the farmers’ price in half (to about 35 cents per pound) to better reflect the world market--the Ivoirians committed two major mistakes.

One was to continue paying the highest farm price in the world; at 65 cents a pound, Ivory Coast drew tons of smuggled beans over the border from Ghana and elsewhere. In getting half the price overseas that it pays its own farmers, Ivory Coast stands to lose $520 million on the 1988-89 crop alone.

The second mistake was the withholding scheme.

With no cocoa moving out of the country, acres of beans were left for months at dockside. Several Ivoirian banks, stuck with uncollectible loans to cocoa exporters, are insolvent. By cutting off the flow of cash through the economy, the boycott may have produced a greater economic shock than would cocoa sales even at rock-bottom prices.

Ivory Coast had to stop paying interest on its foreign debt; accordingly, its arrears have soared from $500 million to $2 billion.

Finally, having stripped itself of its reputation as a reliable supplier of cocoa, the country may have permanently ceded much of its market to lower-cost producers of lower-quality beans, such as Malaysia.

The boycott left up-country farmers desperate to unload their crop, giving unscrupulous middlemen an opportunity to profiteer. Because they could afford to hold raw beans in their warehouses indefinitely, French and Lebanese traders swarmed into the villages, sadly remarking on the dimensions of la crise while paying the frantic farmers a pittance or, worse, with scrip that they never redeemed.

Lebanese merchants, whose numbers here had grown so much during the war in their homeland that they were beginning to inspire resentment anyway, became scapegoats of the crisis in the villages. Stories soon reached the capital of middlemen slaughtered, their decapitated bodies found in the bush.

While none of these tales appear to have been confirmed, it is certainly true that up-country traders have seized their opportunity.

“This year the traders have probably made more money than ever before,” an Abidjan cocoa broker remarked.

Indeed, this year, it seems, cocoa is making only the middlemen rich. With every ton that leaves the docks at Abidjan, bound for France or the Netherlands to be sold at prices far below the cost of production, the rest of the country gets poorer.

And all over Ivory Coast, a similar story is being told.

Take the scene in one typical market town: Tiassale, about 75 miles northwest of Abidjan, deep in the Ivoirian bush.

Here, a ruined Mercedes and an empty house are the only signs of the Lebanese cocoa trader who left town with all the farmers’ money.

The trader papered the village with IOU’s, Kaou Bernard, the manager of the empty cocoa warehouse on the main street, recalls.

“The farmers never got paid, none of them,” he says. “The Lebanese fled with their money. The children have no fees to go to school, so they stay home. The farmers are eating their own pineapples and bananas to live, so they have nothing left to sell.”

Ivory Coast’s quixotic attempt to manipulate the cocoa market is perhaps easier to understand if one contemplates what makes Houphouet-Boigny tick.

Sick with malaria and half-blind, Felix Houphouet-Boigny prides himself on being the country’s “first planter.”

A former French Cabinet minister who came to power three decades ago on a platform of protecting growers from the depredations of foreign landowners, Houphouet-Boigny turned to a similar theme during the price crash: The Ivoirians, he asserted, were being victimized by foreign companies and “faceless speculators.”

He brooked no suggestion that it was Ivory Coast’s own crop that contributed to the cocoa glut.

The root of the crisis, he said, was to be found on the commodity markets, “where speculators amuse themselves by playing with our cocoa as if they were at the race track or cockfight.”

His convictions could only have been strengthened last year when Ivory Coast turned to one of those “speculators,” the French trading firm Sucres et Denrees, to help it move 400,000 tons of its stagnant cocoa off the docks.

Sucden, as the firm is known, had reportedly agreed to help prop up the market price, with French government assistance, by holding 200,000 tons off the market indefinitely.

In the event, a financially strapped Sucden dumped its cocoa on the market, depressing prices further. The Ivoirians were so incensed they gave a new sales contract to a Sucden competitor, U.S.-based Phibro, a unit of the Salomon Bros. investment bank; reportedly the new pact gives Phibro the right to 1 million tons of Ivoirian cocoa over the next two years.

Yet for all the talk of manipulative speculators, one thing made clear by the cocoa crisis is that the astonishing success of this country in its first two decades of independence masked some bad decisions in the decade that followed.

One was a failure to diversify out of King Cocoa. Last year, when Ivoirians produced an estimated 800,000 tons, their closest competitor, Brazil, produced only 350,000.

But cocoa dominated them as well. Cocoa accounts for about 40% of Ivory Coast’s foreign earnings, with coffee, another underpriced commodity, contributing another 20%.

It is also evident the Ivoirians may have misspent their 20-year windfall. Although no one disputes their wisdom in creating a world-class transportation infrastructure, more people are wondering today why Ivory Coast did not bank more of its windfall against the day the market turned against it, an inevitable event.

Instead of railing against the manipulation of producers, the country could have followed the lead of oil producers by investing more in distribution and processing--a particularly devastating omission in hindsight today, when chocolate makers like Nestle and Cadbury are so flush with cash that they are playing a global corporate takeover game.

Today, there are signs that Houphouet-Boigny’s obdurate fight is waning. Bowing to pressure from the World Bank and the International Monetary Fund--the dual props of the failing Ivoirian economy--Houphouet-Boigny on July 1 announced a cut in the farmers’ price from 65 to 35 cents a pound for the “intermediate” growing season, which ends Sept. 30.

The reduction will certainly ease the strain on the government treasury, but in the cocoa brokerage offices of Abidjan, there is some doubt whether this will have any long-term impact on the depressed market.

“We reckon world supplies now are higher than they’ve been since 1963,” said one broker, reading through a pile of production figures. “I’d say it’s a very bleak picture.”

It’s a picture not lost on the farmers or anyone else in the distribution chain here.

At the port district of Vridi, just seaward of Abidjan, a dozen trucks stand idle along the main boulevard, charged with tons of cocoa beans spreading their acrid and vinegary scent through the humid air.

Amadou Colubali, 51, unfolds himself off the Muslim prayer mat laid out in the humid shade under his truck.

He surveys the trucks parked along the boulevard. Drivers wary of leaving their cargo to bandits slumber in nets slung like hammocks under their chassis.

Barely two years ago, Colubali recalls, you could drive into Vridi, unload and drive home before the day was out. You couldn’t deliver enough cocoa to satisfy the demand.

He had arrived here a week ago, he says, from a farm town about 100 miles away. Today his exporter, who is unloading one truck a day, showed him the unloading schedule. He was 40th in line.