Market Reports

War torn: The fate of Ivory Coast’s coffee industry

The docks of Abidjan, for so long the main economic causeway of Ivory Coast’s business capital, have been dorm undefined

ant. Like the airport and the roads north out of the lagoon city, the only traffic at the port has been military — United Nations convoys or French peacekeepers who have tried to preserve the vital trade infrastructure from the destructive conflict outside.

Inside Abidjan’s warehouses, hundreds of thousands of tons of agricultural commodities have been waiting for the crisis to pass and normal commercial life to resume. As the world’s leading cocoa producer, most international attention has focused on the condition of that crop. But, alongside it lies the fate of Ivory Coast’s coffee industry – in a decline for so long, but that could now steepen or, some hope, be reversed depending on what happens next.

As recently as the 1980s Ivory Coast was ranked as the third largest coffee producer in the world, lagging only behind South American giants Brazil and Colombia. By the end of last year it had slipped to 13th worldwide. And, the impact of the current crisis was revealed by an almost three-fold drop in production to fewer than 40,000 bags in February this year. But, the malaise in Ivory Coast’s coffee business was demonstrated by the fact that its crisis barely moved world markets.

“The share of Cote d’Ivoire in world coffee production has been declining steadily in recent decades,” says Executive Director of the International Coffee Organisation (ICO), Jose Sette. “For this reason, coffee prices were not greatly affected by the political crisis.”

In some senses the story of coffee’s decline in Ivory Coast is the story of the country’s decline. Last November’s general election was supposed to bring unity to the Ivory Coast, so long the bank, factory, school and breadbasket of West Africa. Instead, it brought an accelerated climax to the destruction of an  economy, caused more by politics rather than by global economics.

Amid the ruins of Abidjan, campaign posters still hang proclaiming Alassane Ouattara and his “alliance for change” and Laurent Gbagbo, the “100 percent Ivorian president.” The contest between these politicians and their supporting camps was not resolved at the ballot box, despite international monitors proclaiming Ouattara the winner with 54 per cent of the vote to his opponent’s 46 per cent. The incumbent, in power since 2000, had the result overruled with the help of a constitutional court stuffed with his own appointees and then ignored international pressure to stand down. A wall of economic sanctions followed from the African Union, European Union, United States and the United Nations.

Ivory Coast soldiers coffee and warWith memories of the civil war still fresh after seven years and support for the two candidates divided roughly along north-south lines, Ouattara opted to initially economically strangle his rival.

Gbagbo responded earlier this year by nationalising the country’s coffee and cocoa businesses, seizing economic assets and then taking control of the banks.

When in March it became apparent that the sanctions were not working quickly enough, Ouattara’s supporters among the northern rebel commanders swept south in a lightning offensive, pushing forces loyal to Gbagbo back into Abidjan. The former history professor was eventually arrested, but only after a controversial intervention by UN and French forces who destroyed much of Gbagbo’s remaining force, allowing his rival’s soldiers to detain him at his compound.

At first, the scale of the destruction in the former French colony seems enormous. An unknown number of people have died and early UN estimates suggest that the figure of 2000 civilians will rise rapidly. One million people have been displaced by the fighting, many of them from key farming areas in the east and west. The country’s commercial capital witnessed two weeks of heavy fighting and widespread looting, while the second most important port city, San Pedro, was also affected.

With banks closed for nearly two months, there is a liquidity crisis affecting all areas of trade and finance. Sources said that the new government would have to bring in cash by helicopter from the headquarters of the regional central bank.

The banks are only now reopening and the major players in the coffee industry – Cargill and Nestle – remain closed. However, Joseph Lake, the Africa head of the Economist Intelligence Unit said the prospects for recovery may be better than they initially appear.

“This year a recession is forecast, but that is down to the first six months. We’re expecting a certain degree of bounce back in the second half of the year.” Among the reasons for optimism is that Ivory Coast’s new leader is an economist and central banker.  Ouattara served as number two at the International Monetary Fund and had a record of improving government finances during a previous spell as Prime Minister under independence leader, Félix Houphouët-Boigny.

“There is a lot of money waiting to pour into the economy if the future looks stable,” says Lake. “Foreign investors have been waiting and it is in Ouattara’s interest to get the agricultural sector back producing as he needs to show success.”

The analyst also points to traders’ familiarity with unrest in Ivory Coast after years of “low-level” civil conflict and unorthodox governance. Nestle, who operate two factories in the country and a research and development centre in Abidjan employing a workforce of 1000, only reluctantly stopped operations.

“We have been present in Côte d’Ivoire for more than 50 years. We always aim to maintain operations in all countries, even under the most difficult circumstances,” says Nestle’s Millicent Molete.

“Throughout the political crisis we kept our operations running. Towards the end of March, we temporarily suspended our operations as we were no longer able to guarantee the safety of our employees.

“Some of our installations have suffered minor damage, but we are hoping to resume operations as soon as circumstances permit.”

Sources in Abidjan expected the restart to come as soon as 26 April.

While no studies have been carried out, it is unlikely the crisis has impacted significantly on actual coffee plantations. “Coffee is a perennial (tree) crop,” said the ICO’s Sette. “So, it is unlikely that there has been any physical damage to the crop.”

Whereas the cocoa industry is expected to quickly recover as the aftermath of the political crisis clears, the question for coffee is whether anything can be done to revive a moribund sector in Ivory Coast.

Prior to independence, production grew at a rate of 10 per cent a year in what was then French West Africa, thanks to a productive nursery sector. By the late 1950s, however, expansion slowed and production was mired on average at 252,000 tons for the two decades following 1965.

By the mid-1980s, 60 per cent of the coffee trees in the country were more than 15 years old and producing well below average yields. Attempts during the latter years of the Boigny administration to encourage the planting of new trees were largely unsuccessful and production in the ageing plantations continued to drop.

The gradual decline has continued in recent years, according to figures from the ICO, with 1.97 million bags produced between March 2009 and February 2010; and that figure falling to 1.79 million the following year.

Even before the elections, coffee-bean exports from Ivory Coast fell 19 per cent in October, according to data supplied by the ports of Abidjan and San Pedro. Shipments declined to 7439 tons from 9207 tons a year earlier.

The impact of the crisis can then be seen in a year-on-year fall from 99,400 bags produced in February 2010 to 38,867 in the same month this year.

Part of the explanation for the dwindling output comes from past decisions to invest in cheaper crops. Introduced as a cash crop during the colonial period, coffee was cultivated throughout Ivory Coast’s forest zone, with the heaviest production in the denser forests of the east and along the margin of the forest moving westward from Dimbokro to Man.

Ivory Coast producers have failed to see the benefits of recent price rises on the world market as the country early on opted for Robusta varieties that were more bitter and less expensive than Arabica varieties and were therefore used in blends to reduce costs. The bulk of the sector continues to feed the instant coffee market, which has not seen profit rises equivalent to those of high-end coffee.

Beyond commitments in his election manifesto to reviving the coffee sector, the incoming Ouattara’s specific intentions remain unclear. His spokesman and economic advisor Patrick Achi says that the desperate measures of the final days of the Gbagbo government will be undone. All legislation passed since November has been repealed, sanctions have been dropped and exports have resumed.

Ouattara is generally viewed as being “pro-business” and can rely on strong relations with international lenders as well as backers in Paris and Washington, thanks to his time at the IMF.

For now it’s too early to tell whether the crisis will mark another chapter in the decline of Ivory Coast coffee or the beginning of a recovery.

“Overall, it would be premature to make any evaluation of the future of Ivoirian coffee with the information currently available,” Sette says.

The human toll on the country’s producers both large and small has been considerable. There continues to be a fear that some will choose to take their money elsewhere.

About Haughot, a coffee and rubber plantation owner, was among the thousands of affluent evacuees at the base of France’s Force Licorne in Abidjan. An Ivorian businessman with a French passport he sought shelter there after his home in the Riviera area was caught up in the fighting.

“Some of the family say we should go to Europe and others want to stay,” he says. “All our possessions are here, we have three homes. Personally I don’t trust the politicians. They have waited for so long to solve this. If I can afford to I will transfer all my money out of here when the banks re-open,” Haughot says.

However, not everyone has the same choices and many will inevitably stay and rebuild. Sanogo Moussa lives and farms coffee in Gbapleu-Gningleu, about 20 kilometres east of Ivory Coast’s border with Liberia. Regarded as a “wise man” in his village he is one of hundreds of thousands of people whose parents migrated to the country in better times and make up the bulk of the rural labour force. He sees no choice but to stay.

“I was born here and am 64 years old. We are part of this community now, alongside all our Ivorian brothers and sisters and we have a common goal for our families and our village to prosper. That’s all.”  Only time will tell where this nation’s industry ends up. 

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