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Impact on cocoa of Ghana head's death may lie months ahead

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Last year, troubled elections in Ivory Coast, the top cocoa producing country, sent bean prices soaring, and prompted industry ructions as processors shifted operations to more stable geographies.

Will the death in office of John Atta Mills, president of neighbouring Ghana, the second-ranked cocoa producer, herald a fresh round of instability?

Ghana - a country unlike Ivory Coast renowned for political stability - quelled many fears by appointing sharply Vice-President John Dramani Mahama as caretaker premier, to fill the power vacuum.

While cocoa futures rose on Wednesday, against weakness in other soft commodities, in what traders attributed in part to the injection of some risk premium, gains were modest.

Cocoa for September delivery added 0.8% to £1,554 a tonne in London and 1.3% to $2,237 a tonne in New York.

Regional stability question

However, that does not mean the market can take a smooth handover of power, and a continuation of Ghana's lauded cocoa policies, for granted.

"There is always going to be some uncertainty in the market when there are doubts about the stability of the second largest cocoa producer," said Judith Ganes-Chase, the veteran soft commodities analyst.

"People are going to take notice after what happened in Ivory Coast. They will want to know what this means for regional stability, for whatever is going on between Ivory Coast and Ghana."

Mr Atta Mills signally last year declined to back the deployment of West African troops in Ivory Coast's conflict, a decision which could be viewed as consistent with his popular title of Asomdwehene, or King of Peace, but was interpreted by some as helping out Ghana's own cocoa trade, which stood to gain from extended hostilities.

But as to seeking real substance on what the president's death means for cocoa, that quest is "premature".

Poll ahead

That is because the real test may come in December, when Ghana holds long-scheduled elections, in which Mr Atta Mills had won the nomination for the ruling National Democratic Congress party.

"In the short-term the president's death will have an impact. Ghanaians are going to be mourning, paying their respects," said Eric Sivry, head of the agriculture options brokerage at London-based Marex Spectron.

"But longer term, most important will be elections at the end of the year. If there are going to be any many changes, it will be after the elections."

Even before then, Mr Atta Mills' death has created an uncertainty in the requirement of the National Democratic Congress party to elect a new leader, with Mr Mahama and Nana Konadu Agyeman Rawlings - the wife of ex-president Jerry Rawlings, who still carries clout in Ghana – among names in the frame.

Importance of stability

Mr Atta Mills' term in office was certainly a period which enhanced Ghana's cocoa credentials, with production soaring from some 710,000 tonnes when he took office in 2009 to top 1m tonnes in 2010-11 - although it is not clear whether that was down directly to his policies.

"The country's cocoa industry has flourished to a large part because of the country's stability," said Macquarie analyst Kona Haque, with beneficial weather also helping last season's record result, besides Ivory Coast civil war, which prompted many growers to smuggle beans over the border, inflating Ghana's result.

Ghana's output is expected to drop to 890,000 tonnes in 2011-12, according to the International Cocoa Organization.

'Well-oiled machine'

And it is not obvious that victory in December's elections of the opposition New Patriotic Party, led by Nana Addo Dankwa Akufo-Addo, would represent a threat to Ghana's cocoa industry.

Mr Akufo-Addo has promised, if elected, to continue many of the National Democratic Congress's policies – which he says were, in turn, inherited from the last New Patriotic Party government, in office until 2009.

Signally, Anthony Fofie, the head of Cocobod, Ghana's powerful cocoa regulator, was appointed in 2008 by the New Patriotic Party.

However, any hiccups in Ghana would be felt throughout the industry, given the leading place it has secured itself in cocoa production, through measures from free tree spraying to subsidised fertilizers, which have raised both the quality and quantity of bean output.

"Ghana's cocoa industry is a well-oiled machine. It is an example to other Africa producers," Mr Sivry said.

By Agrimoney.com

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