Daily Management Review

Chocolate Maker Hershey Avoid African Premium To Grab A Large Volume Of Cocoa From Exchange


Chocolate Maker Hershey Avoid African Premium  To Grab A Large Volume Of Cocoa From Exchange
A sizeable amount of cheap cocoa from futures exchange ICE will be bought by the United States based chocolate maker Hershey Co. This development also underscores the issues being faced by cocoa producers in Africa to sell their products at a premium which was recently agreed to with buyers, said reports quoting traders of cocoa.
Delivery of thousands of cocoa lots prior to the expiry of the contract on December 15 will be taken by Hershey, according to several market sources quote din the reports. That volume was as high as 30,000 tonnes, dealers suggested.
This development and move by Hershey us has taken place at a time when cocoa producers in Ghana and Ivory Coast, the largest producers of the drop in the world, are selling their first crop as per the new scheme that includes selling the crops at a price premium of $400 per tonne. This agreement was made to help alleviate farmer poverty. There was vocal support from chocolate makers for the deal and the premium which is known as LID.
The recession caused by the novel coronavirus pandemic has resulted in a demand for non-staple foods like chocolate which is largely responsible for the difficulties being faced by the African countries in selling their crop with the premium.
"The exchange right now is the cheapest place to buy cocoa," said a US-based broker which indicated that the move by Hershey can be justified because of the lower prices of the crop in the market compared to the high African premiums.
An exemption from ICE to sharply exceed delivery limits has been given to Hershey, traders said. There were no comments available from the exchange.
"While we do not discuss details of our specific buying and hedging activities, we buy cocoa from a variety of suppliers and sources to meet our on-going business needs," Hershey said, and added that the company had also purchased cocoa from producers in  Ghana and Ivory Coast under the new prices or the LID premium prices.
Reacting to the ICE trade, the two African countries threatened to suspend the sustainability schemes of the cocoa companies.
"An unprecedented delivery for a branded company that will push the continued problem of unsold LID premium cocoa back further," one European trader was quoted in the reports as saying. The trader added that the fact that they found the marketing of cocoa at the premium prices to difficult has been made clear to the African countries by middlemen.
The total sale of cocoa from Ivory Coast and Ghana are currently lower than the sale volume seen at this time a year earlier by 500,000 tonnes, according to the estimates of another European trader, said report.