Dakar, Oct 7 - Long-term decline in Ivory Coast's cocoa sector is helping to create a stubborn supply shortfall on world markets that will buoy prices, despite efforts by competing growers to exploit the top producer's problems.
Cocoa futures have raced to new highs in London and New York this week, brushing aside encouraging news on harvests in world number two grower Ghana and in Indonesia. The London market hit its highest in nearly 25 years on Wednesday.
While the rally has been largely driven by a wave of automatic buy orders, analysts said concerns over the Ivorian sector provided the backdrop to the surge and would continue to support market prices for the foreseeable future.
"It's always going to be the case that Ivory Coast is crucial to setting the dynamic," said Barcap analyst Nicholas Snowdon of a country which accounts for around a third of global output, despite years of underinvestment and lack of reform that have hit bean quality and volume.
"Apart from Ghana, the consensus is to be sceptical about the prospect of year-on-year gains elsewhere -- for that you need the political will," he said of aspirations by growers in West Africa and elsewhere to step into Ivory Coast's shoes.
In an investment note, Barcap predicted a deficit of some 164,000 tonnes in the global cocoa market for 2008/09 and a shortfall of 100,000 tonnes in the coming season creating scope for the ICE futures contract to trade over $3,500/T.
That tallied with the result of a Reuters poll in late September in which four organisations predicted a global supply deficit of up to 100,000 tonnes next year.
DEADLOCK
While Ivorian farmers braved a 2002-2003 civil war to get their beans to port at the rate of 1.3 million tonnes a year, the subsequent political limbo has slowly taken its toll.
Ivory Coast closed the book on its worst harvest in five years on Monday, with 2008/09 port arrivals lagging last year's total by 14 percent at 1.178 million tonnes.
In a first sign that the new season could be even weaker, exporters estimated port arrivals in the week to Oct. 4 at 6,500 tonnes, 3,000 tonnes down on a year earlier.
A chronic lack of infrastructure, insufficient efforts to tackle pod disease and a tax regime that makes Ivorian farmers among the worst paid cocoa growers in the world all contribute to a sector stuck in a rut.
Only a newly-mandated government is now seen able to enact long overdue reforms -- but a political deadlock in Abidjan has delayed polls for four years and few analysts seriously believe the latest Nov. 29 target date will be met.
Last week's announcement by Ivorian authorities of a small cut in the DUS (Droit Unique de Sortie) tax paid by exporters and a 35 percent rise in the indicative farmgate price payable to farmers met widespread market scepticism.
"The farmgate price is irrelevant because there is no way of enforcing it," said a U.S. based cocoa analyst. "Farmers hear about it but they don't get it, so they become discontented."
BACK TO POLITICS
Growers such as Ghana and Cameroon have spotted a gap in the market, but have not yet persuaded buyers they are capable of transforming supply fundamentals.
Ghana's 2008/09 harvest hit 703,000 tonnes, up from 680,000 the year before and its third best result since 1965, industry sources said on Monday. But that remains short of a target of one million tonnes which it last month pushed back from 2011 to 2012.
Fifth-largest grower Cameroon is looking to double output to over 400,000 tonnes a year through subsidies for yield-boosting pesticides and infrastructure improvements, but has so far been coy about when it might achieve that.
News last week showing a six percent drop in Nigeria's cocoa exports to 149,050 tonnes for the 10 months of the season so far only underlined the gradual slump in a sector which at its 1970s peak churned out 400,000 tonnes a year.
"West Africa has not replanted enough to renovate the plantations," said Ricardo Santos, senior broker at Fortis Commodities Derivatives, noting that regional efforts to raise yields could be stymied by currently high fertiliser prices.
Against such a backdrop, attention will inevitably focus on the political scene in Ivory Coast.
At present, fears that unrest could lead to disruption of the supply chain are balanced by the more optimistic reading that, after cajoling from international partners, Ivorian authorities will be ready to stage polls in early 2010.
"The election could be crucial. If it passes peacefully, it could mark a turnaround for the sector," said Barcap's Snowdon, while noting that even then, any sector reform drive would not have immediate results.