Crisis in Cote D’Ivoire: How Political Instability Alters Trade Patterns

The big news in this part of the world (West Africa) is the recent democratic election in Cote D’Ivoire, which saw the anointing of not one but two presidents.  The incumbent president, who has led the country for 10 years and is constitutionally barred from seeking a third term in office, is refusing to step down after a decisive 54-46 loss to Alassane Ouattara, an economist and technocrat who also happens to be both a Muslim and a leader of the rebel groups in the north.  The international community has unanimously rallied behind Ouattara and called for Gbagbo to step aside.  The World Bank has suspended aid to the country, and Ouattara has called for the Central Bank to stop releasing money as a way to “starve the beast,” and turn hungry soldiers against the incumbent president. Unfortunately, with 173 people killed so far in the post-election violence, analysts are predicting the country is going to slide into another civil war.

Cote D’Ivoire is the largest cocoa producer in the world.  The second-largest producer is Ghana, its next door neighbor.  Cocoa production in Ghana is regulated by a national authority, Cocobod, which controls all exports out of the country, paying fixed prices to farmers.  In times of political stability, Ghanaian cocoa farmers smuggle their cocoa into Cote D’Ivoire, where there are fewer controls and prices paid for export are higher.  During 2009-2010, Ghana lost about $300 million worth of potential cocoa exports due to cross-border smuggling.  But with the government of Cote D’Ivoire on the brink of collapse, the trend has reversed, with Ivoirian cocoa farmers smuggling their product into Ghana.  This from Bloomberg:

Higher cocoa prices paid to farmers in Ghana and political instability in Ivory Coast has reversed a smuggling trend between the world’s top two producers of the chocolate ingredient that cut Ghana’s official output last season.

Between 75,000 and 100,000 metric tons of cocoa have been smuggled to Ghana from Ivory Coast since the 2010-11 harvest began on Oct. 1, Steven Haws, an analyst with New York-basedCommodities Risk Analysis, said in an interview from the city on Dec. 21.

The trend is also the result of a shift in the price paid to farmers in Ghana and Cote D’Ivoire as a result of “roadblocks, lawlessness and delays rais[ing] the transport costs of bringing cocoa to the ports of Abidjan and San Pedro.”  This reversal will be amplified by the political turmoil in the country:

“I think it’s pretty clear up until recently that the economic benefit of moving cocoa from the Ivory Coast to Ghana has been significant, with the recent political turmoil it’s become even more significant,” Marex’s Parkman said. “At the moment, moving cocoa, even finding buyers around Abidjan has become difficult.”

Commodities traders are anticipating the worst and buying cocoa futures, which has driven up the price of cocoa recently.  The situation in Cote D’Ivoire is certainly tragic.  It is also an interesting case study in the world of commodities trading an unstable region of the world.

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2 comments for “Crisis in Cote D’Ivoire: How Political Instability Alters Trade Patterns

  1. naringar rosine
    January 27, 2011 at 2:44 pm

    that issue to look and look again if they is some body that care fore the domestique environment he chould not be looking only at his own interest and both gbagbo and ado should look around… who so ever didnot imagin going to the battle and loose it? wisely it is an oportumnity of the looser to show to people that he is able to do it even if he is on there . politics!! or gbagbo have seen a very strong power in ado and he thing he will remain in the book history of cote divoire with not chance of comming back…. people chould stop looking at useless thing link nationality and so on and so fore but try to see what the leader will be able to do fore the nation and development…..

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