Asia still key in cocoa industry despite lower production levels, lack of investments: panel
Uma Devi
ALTHOUGH Asia has seen its share of cocoa production fall significantly over the past decade, market watchers still believe the region plays a key role in the commodity’s industry in terms of both demand and supply.
Speaking at a panel entitled Cocoa Fundamentals Outlook for Asia: Supply and Demand at the International Cocoa Conference on Thursday (Sep 1), Rabobank analyst Oscar Tjakra noted that 10 years ago, Asia accounted for 13.3 per cent of cocoa production. Today, the region accounts for just 4.3 per cent.
According to Rabobank’s estimates for 2022, Indonesia, Malaysia and Singapore are major cocoa processing locations in the region. But these countries have seen their share of challenges, which have caused production figures to fall.
Of these 3 countries, Indonesia is the biggest cocoa producer. But Tjakra said production in Indonesia has fallen from 500,000 tonnes to 180,000 tonnes over the past 10 years. One of the factors that has led to the decline is low yield, which is triggered by a lack of knowledge and technical expertise.
There has also been a lack of investment in Indonesia’s cocoa industry. For instance, trees are older, and smallholder farmers have limited access to replanting.
Over in Malaysia, production has declined as the expansion of oil palm plantations has led to the exit of cocoa producers from the industry. Singapore’s production capacity has not changed much, as the country is more of a processor than a planter.
Some farmers in both Indonesia and Malaysia have also shifted their focus to other agri-commodities – including corn and durians – that will reap higher profits. Farmers in Malaysia are also looking at using the land for real estate, noted Tjakra.
While prices of other agri-commodities have been hitting historical highs over the past year amid food inflation and favourable demand-supply dynamics, cocoa prices are relatively flat year on year.
Michel Arrion, executive director of the International Cocoa Organization and a speaker at the panel, noted that cocoa prices are “too low to provide farmers with a decent living income”.
Over the past 50 years, the cocoa market has had about 32 years of surplus and 17 years of deficits. “The cocoa market is structurally in surplus, the supply surpasses the demand and prices are low,” said Arrion.
There are, however, bright spots. Tjakra said cocoa production yields are still increasing at a small volume in countries such as India, Vietnam and the Philippines, and yields still have room to grow.
On the demand end, Asia is also a key importer of cocoa. The region accounts for more than 25 per cent of global cocoa powder imports, making it the second-largest importer of cocoa powder globally. The largest consumers in Asia include Japan, India, China and Indonesia.
Looking ahead, Tjakra said there are certain issues that will impact the cocoa industry in the near term. Although container spot rates have subsided significantly from 2021 peaks, he said rates are not expected to fall back to the levels they were at back in 2020.
High freight rates are among the factors that crimp margins for Asia’s cocoa processors, he said. Congestions are also expected to remain at key ports till H1 2023.
Another panellist, Frederic Wenger, who is the head of research at Olam’s food ingredients unit ofi, said weather patterns are one to watch for the industry.
Like other agri-commodities, cocoa is highly sensitive to weather conditions. The crop grows best in high temperatures and heavy rainfall.
Wenger estimates that there will probably a decline in global cocoa production this year in the range of 400,000 to 500,000 tonnes compared with 2021.
Crop numbers have also been revised to the downside due to drier weather in key producing countries such as Cote d’Ivoire and Ghana, although the panellists agreed there is unlikely to be any drastic impact to overall supply.
