A new cocoa pricing mechanism announced by top growers Ivory Coast and Ghana earlier this month is causing cocoa costs to rise, a Mondelez International Inc (MDLZ.O) executive said on an earnings call with analysts on Tuesday.
“It is fair to say that given some of the proposals that are coming out of Cote D’Ivoire and Ghana, there is a spike in cocoa cost,” said Luca Zaramella, the chief financial officer of the Illinois-headquartered maker of Oreo cookies.
Earlier this month, the two West African countries, which account for nearly two-thirds of global cocoa production, announced a “living income differential” of $400 per tonne of cocoa for the 2020/2021 season in an effort to combat widespread farmer poverty. This replaced an earlier proposal for an outright floor price of $2,600 per tonne.
Both New York CCc1 and London cocoa LCCc2 futures hit roughly one-year highs around the time of the pricing announcement, but have since slipped. Many market participants remain uncertain as to how exactly the new mechanism will be implemented.
“Concepts like the living income differential are putting a little bit of pressure in the market. And the cost of cocoa has gone up,” Zaramella said to an analyst, declining to comment on any company plans to adjust the future pricing of its goods in Europe.