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West Africa vs Big Chocolate: Battle over price sours relations

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The 100,000 cocoa farmers Frank Okyere represents as head of Ghana’s Kuapa Kokoo co-operative eke out hardscrabble lives despite producing the raw material for a global chocolate industry worth an annual $100bn in retail sales.

The world’s two largest cocoa producing countries, Ivory Coast and Ghana, have added a supplement to the sale price in an effort to alleviate poverty. But a dispute over whether global buyers were prepared to pay illustrates how hard it will be for the two nations to control and lift prices in an industry dominated by millions of smallholders.

“We are not asking too much from industry, just meet our cost of production and help us get something small to live,” said Mr Okyere. “I don’t think it’s too much to ask, because once they do that they can still make big profits.”

The disagreement centred on a $400-a-tonne “living income differential” (LID) added to the price of cocoa harvested from this crop year, bought from Ivory Coast and Ghana, which account for 60 per cent of global production. In the past few years they have collaborated to try to raise the share farmers earn — just 6.6 per cent of the sale price of a bar of the confectionery, according to the Cocoa Barometer, published by Voice Network, an umbrella group for 17 nongovernment organisations.

In letters circulated in the industry, the Ivorian Conseil du Café-Cacao and the Ghana Cocoa Board this month accused the chocolate producers of trying to avoid the LID after US group Hershey took the rare step of sourcing cocoa beans from the futures market in New York. Analysts said this meant it did not have to pay the supplement, although Hershey said it was supportive of improving farmers’ livelihoods. Buyers normally purchase the commodity from traders that source directly from Ghana and Ivory Coast.

Ivory Coast and Ghana lead global cocoa production

Authorities in both nations responded by banning the company from operating sustainability programmes on their soil — initiatives businesses are keen to support amid increasing global focus on sustainability and issues such as deforestation and child labour. While the chocolate producer’s commitments to pay the LID ended the dispute, it demonstrated the limited leverage held by producers.

Ivory Coast and Ghana sought to punish Hershey by suspending programmes despite their benefits for farmers, said Kobi Annan, Accra-based consultant at Songhai Advisory, a business intelligence firm.

By cancelling the initiatives, they wanted to hold more cards “when we sit down and solve this big problem: why do countries who produce 60 per cent of a commodity have no real power in setting its price?” 

The limited leverage held by cocoa producers came into focus in a dispute with US confectionery group Hershey © Daniel Acker/Bloomberg
Governments are reluctant to curb cocoa production because millions of farmers depend on the commodity © Cristina Aldehuela/AFP/Getty

But ultimately, said a Ghanaian official speaking on condition of anonymity: “Your negotiating position is not that strong, so you’re entirely dependent on public sentiment, environmental sustainability concerns, child labour concerns, income inequality concerns, to make the other party feel a little guilty so they contribute more.”

Part of the problem is that rising farmgate prices — set by the government — and an increase in sustainability programmes have encouraged millions of small farmers who are desperate for cash to produce more, weighing on market prices.

This year, an election year in both countries, governments jointly raised the price by about 20 per cent to $2,600 a tonne, still $500 less than the Cocoa Barometer estimates farmers need to earn a living wage. 

Global cocoa output has grown 18 per cent over the past five years to 4.7m tonnes, with top producer Ivory Coast producing 2.1m tonnes in the last crop year, up almost a third, according to the International Cocoa Organisation of producing and consuming countries. Ghana produced 800,000 tonnes, up 3 per cent.

Column chart of Million tonnes showing Ivory Coast pushes up cocoa output

“If you want [world] prices to rise, you do not produce considerably more than the market needs,” said Derek Chambers, former head of cocoa at French trader Sucden.

There is now rising concern that Ivory Coast and Ghana will be left holding unsold cocoa in a year when the harvest is expected to be at record levels, analysts say.

As a result of lower global demand and the LID, sales agreements in the two countries for this crop year and next are far below normal, said Jonathan Parkman at commodity brokers Marex Spectron.

Deals covering about 70 per cent to 80 per cent of their crop for the current year and about 5 per cent for the following year compared with normal years, where both would have sales agreements for all their current year cocoa and about 20 per cent to 25 per cent for the following year’s harvest, he said.

Mr Parkman said there was frustration among buyers over a lack of transparency and accountability around the LID operation. “The LID is going to have to be reformed. It’s not sustainable as it is over time,” he added.

Antonie Fountain of the Voice Network said some of the confectionery groups were putting profits ahead of farmers’ wellbeing.

But brokers and analysts said efforts by Ivory Coast and Ghana to collaborate and control prices would struggle — partly because of smallholders’ desire for cash and rival producers’ ability to expand market share.

“It’s a very difficult situation,” said Bright Simons, a researcher at Ghanian think-tank Imani. “Ultimately cartels struggle in commodities,” he added. “That’s the lesson of the last couple of decades.”



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PayPal to acquire ‘buy now, pay later’ provider Paidy for $2.7bn

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Mergers & Acquisitions updates

PayPal, the US online payments company, has agreed to acquire Paidy, a Tokyo-based “buy now, pay later” group, for ¥300bn ($2.7bn) in the latest shake-up in the industry.

The deal announced late on Tuesday, which will be paid for principally in cash, deepens PayPal’s push into the crowded BNPL sector, in which consumers spread the cost of goods over a small number of payments, typically without interest and often without requiring a credit check.

Last month, Square, the payments company led by Twitter chief executive Jack Dorsey, acquired BNPL group Afterpay for $29bn, in the largest takeover in Australian history.

Shares in San Francisco-based Affirm, another BNPL company, soared last month after it announced a partnership with Amazon allowing shoppers who spend more than $50 to make payments in monthly instalments.

Paidy, founded in 2008, is one of Japan’s few “unicorns”, or start-ups worth more than $1bn. The company launched the country’s first zero-interest post-payment service last year.

While the global BNPL market has exploded in popularity owing to the pandemic-driven boom in online shopping, the trend is only starting to catch on in Japan, where consumers still depend heavily on cash payments.

Paidy allows its 6m registered users to split the cost of goods into three equal instalments with no interest. Users can pay off their balance using cash at convenience stores or bank transfers.

According to Yano Research Institute, the volume of transactions made through post-payment services in Japan is expected to more than double from an estimated ¥882bn in fiscal 2020 to ¥1.88tn by fiscal 2024.

Paidy was valued at $1.3bn when it raised $120m in March, and was expected to list its shares in Tokyo later this year. It has been backed by trading house Itochu, Goldman Sachs and Soros Capital Management along with PayPal.

Russell Cummer, the Japanese fintech’s founder, recently told the Financial Times that a public listing “made sense” — though no firm timetable had been established. Instead, the company is now expected to become part of PayPal by the fourth quarter of this year.

“Paidy pioneered ‘buy now, pay later’ solutions tailored to the Japanese market and quickly grew to become the leading service, developing a sizeable two-sided platform of consumers and merchants,” said Peter Kenevan, PayPal’s vice-president and head of business in Japan.

“Combining Paidy’s brand, capabilities and talented team with PayPal’s expertise, resources and global scale will create a strong foundation to accelerate our momentum in this strategically important market.”

PayPal said Paidy would “continue to operating its existing business, maintain its brand and support a wide variety of consumer wallets and marketplaces”. Cummer and Riku Sugie, Paidy’s president and chief executive, will continue to lead the company, according to a statement.

“Paidy is just at the beginning of our journey and joining PayPal will accelerate our plans to expand beyond ecommerce and build unique services as the new shopping standard,” said Sugie. “PayPal was a founding partner for Paidy Link and we look forward to working together to create even more value.”

The acquisition comes as PayPal rolls out its broader strategy to become a “super app” — incorporating payments, cryptocurrency investments and savings — drawing inspiration from under-one-roof Chinese apps such as WeChat.

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Bitcoin: El Salvador’s experiment does not warrant cross-cryptocurrency price rise

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Bitcoin updates

Early adopters of virtual currencies have a clear incentive to promote mainstream acceptance. The more buyers, the higher the price. Crypto fans, therefore, hatched an online plan to bolster bitcoin as El Salvador legalised the tokens for payments. That was logical. The knock-on rise in other cryptocurrency prices was not.

Bitcoin’s 8 per cent rise over the past seven days means that it is now worth about $51,000. But according to data from CoinGecko, which tracks more than 9,000 coins, it is not the largest mover. Ethereum, the world’s second-largest cryptocurrency, has leapt 16 per cent over the past week. Solana’s SOL tokens have risen 69 per cent.

There is no sensible reason for these rallies. El Salvador is not expected to make other virtual currencies legal tender. Instead, the jumps reflect a soupy mixture of low rates, blind faith and better investor access.

Trading apps make it easier for retail investors to buy cryptos. The initial public offering of Coinbase in April raised its profile, leading to a jump in downloads.

The make-believe world of nonfungible tokens, or NFTs, has also given cryptos a boost. These prove ownership of digital assets such as art, music or even virtual pet rocks. Many use the ethereum network. Solana, which is backed by Andreessen Horowitz, has its own NFT marketplace, Solanart.

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None of this, however, has anything to do with El Salvador’s attention-seeking adoption of bitcoin. This diverts domestic attention from the failing economy of this impoverished Central American nation, the first country to embrace bitcoin as legal tender. It also supplies cheerier news flow to bitcoin fans than did the cryptocurrency’s collapse in value this spring.

Rising prices mean the total market value of cryptocurrencies has reached nearly $2.4tn. It is rapidly closing in on the previous record of $2.57tn set in May. Bitcoin’s share of the market has fallen. It is now about 40 per cent, down from 57 per cent a year ago. Yet bitcoin remains a powerful bellwether.

This could be a problem if bitcoin’s latest rally depends on success in El Salvador. President Nayib Bukele says the country has purchased 400 bitcoins — equal to just 0.002 per cent of the outstanding value. Local opposition is widespread, suggesting take-up will be low. A damp squib is more likely than the financial dislocation some critics are prophesying.

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Europe stocks notch best day in 6 weeks on sustained stimulus hopes

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Equities updates

European equities had their biggest rise since late July on Monday as weaker-than-expected US jobs data suggested pandemic-era stimulus, which has helped prop up markets, may continue for longer than anticipated.

The Stoxx Europe 600 index gained 0.7 per cent, the region-wide benchmark’s best day in six weeks, as traders analysed the implications of a large miss in US job creation. Employers in the US added 235,000 jobs in August, which fell wide of economists’ projections of more than 728,000 new hires.

“The weak jobs number gave the Federal Reserve ample room to take it easy in terms of how and when it will taper” its $120bn of monthly bond purchases that begun in March 2020, said Maarten Geerdink, head of European equities at NN Investment Partners.

Before Friday’s non-farm payrolls report, some analysts had expected the Fed to announce a reduction of its asset purchases as early as this month.

European stocks, Geerdink added, were “in a sweet spot with the eurozone economy doing well while financial conditions remain extremely loose”.

London’s FTSE 100 index also ended the session 0.7 per cent higher while US markets were closed for Labor Day.

Column chart of Stoxx Europe 600 index, daily % change  showing European stocks notch best day in six weeks

Economists expect the European Central Bank to provide an update about its own debt purchases at its meeting on Thursday, with government bond prices signalling some expectations of a pullback. The yield on the benchmark German 10-year Bund, which moves inversely to its price, was steady on Monday at minus 0.37 per cent, around its highest point since mid-July.

Technology shares, which tend to perform well when expectations of low-for-longer bond yields flatter valuations of growth companies, were the best performers in Europe with the sector rising 1.7 per cent on Monday.

In Asian equity markets on Monday, Chinese shares rallied after vice-premier Liu He said the government would continue to support private businesses despite a regulatory crackdown across the technology and education sectors. 

“Policies for supporting the private economy have not changed . . . and will not change in the future,” Liu said in comments reported by state news agency Xinhua. The CSI 300 index of mainland Chinese stocks climbed 1.9 per cent. 

Japan’s Nikkei 225 gained 1.8 per cent as investors bet that last week’s abrupt resignation by prime minister Yoshihide Suga would usher in a successor more focused on protecting the nation’s economy from rising Covid-19 cases. 

Brent crude, the international oil benchmark, slid 0.7 per cent to $72.10 a barrel.



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